The vice chairman of the Federal Reserve said he does not see any major threats to the stability of the financial system, in the housing market or anywhere else. He is however, concerned that regulators lack some of the tools needed to safely deflate a bubble should one arise.
Speaking at a conference on financial stability in Boston Friday, Stanley Fischer said that he does not see “acute risks to financial stability in the near term.”
Although some analysts have become concerned about stability because of the central bank’s prolonged policy of holding interest rates near zero to raise asset prices and boost the economy, Fischer does not share those worries.
Banks, he said, are “well capitalized.” The housing market “is not overheated.” Household borrowing is just beginning to pick up after slow growth throughout the recession and recovery.
Fischer’s views are not shared by every official in the Federal Reserve system. Earlier this week, Federal Reserve Bank of San Francisco president John Williams warned that he was starting to see “imbalances,” especially in real estate.
Although he is not currently worried about any bubbles, Fischer is concerned that U.S. financial officials have only “limited” regulatory tools to address them as they arise, such as the ability to tighten rules on mortgage lending on the fly.
As the head of Israel’s central bank from 2005 to 2013, Fischer had such tools at his disposal and used them during the financial crisis.
Because of the lack of such regulatory tools, Fischer said, there may be times when it is necessary for the Fed to use monetary policy to address apparent bubbles in the financial markets.
In the past, most U.S. central bankers have been reluctant to use interest rate policy to address bubbles. Fed Chairwoman Janet Yellen has said that the bar for such actions is very high and may not have been justified even during the housing bubble that led to the 2008 financial crisis.
Fischer speculated that, rather than its normal interest rate target, the Fed could use reserve requirements imposed on banks as a tool in such circumstances.
