Fed Rosengreen Says Low Interest Rates Pose Financial Stability Risks

Boston Fed President Eric Rosengren said on Tuesday that the era of low interest rates in the United States and elsewhere poses financial stability risks and that central bankers must factor such concerns into their decision-making.

“Monetary policy is less capable of offsetting negative shocks when rates are already low,” Rosengren said in a speech at a conference on macroprudential policy in Amsterdam jointly organized by the Dutch and Swedish central banks.



In particular, he said, the yield curve will be sensitive to the actions of policymakers when removing monetary accommodation.

“Reach-for-yield behavior can make financial intermediaries and the economy more risky,” Rosengren said. He noted financial intermediaries will need to factor in the possibility of lower rates, particularly during economic downturns, and flatter yield curves.

The Boston Fed chief did not mention the U.S. central bank’s decision to raise rates last week or the U.S. economic outlook in his prepared remarks.

Earlier, at the same conference, Fed Vice Chair Stanley Fischer warned that while the United States and other countries have taken steps to make their housing finance systems stronger, more needs to be done to prevent a future crisis.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza