Yellen, Janet

The Fed vice chairman said the central bank’s low-rate policies are intended “to promote a return to prudent risk-taking” in credit markets. “Obviously, risk-taking can go too far,” Yellen said today at an International Monetary Fund panel discussion on monetary policy in Washington.

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“I don’t see pervasive evidence of rapid credit growth, a marked buildup in leverage, or significant asset bubbles that would threaten financial stability,” Yellen said. “But there are signs that some parties are reaching for yield, and the Federal Reserve continues to carefully monitor this situation.”

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The Fed vice chairman said in her remarks that she was “persuaded” by Columbia University economist Michael Woodford’s theories that keeping interest rates “lower for longer” are suitable for times of high unemployment and weak demand. The FOMC’s decision to tie the benchmark interest rate to economic indicators aligns with the “lower for longer” approach, she said.

As reported by Bloomberg Businessweek