23 Apr 2014
Yellen unveils tensions - BAML
FXStreet (Guatemala) -Brian Smedley, Rates Strategist at Bank of America Merrill Lynch explained, last week, Fed Chair Janet Yellen delivered two speeches that, in our view, highlighted the tension that sometimes exists between the Fed's various policy mandates.
Key Quotes
"One speech described the FOMC's monetary policy framework, namely how the Fed adjusts policy to unforeseen economic developments in the pursuit of its full employment and price stability goals."
"The other discussed the Fed's financial stability mandate, specifically lingering concerns about financial intermediaries who rely on short-term wholesale funding (eg, repo, securities lending, commercial paper, interbank borrowing, etc). Yellen noted that the runs on short-term funding markets "were the primary engine of a financial crisis from which the US and the global economy have yet to recover".
"In our view, one of the more interesting questions facing policymakers is how financial stability considerations should be incorporated into monetary policy decisions. For instance, to what extent could highly accommodative monetary policy engender financial stability risks?"
Key Quotes
"One speech described the FOMC's monetary policy framework, namely how the Fed adjusts policy to unforeseen economic developments in the pursuit of its full employment and price stability goals."
"The other discussed the Fed's financial stability mandate, specifically lingering concerns about financial intermediaries who rely on short-term wholesale funding (eg, repo, securities lending, commercial paper, interbank borrowing, etc). Yellen noted that the runs on short-term funding markets "were the primary engine of a financial crisis from which the US and the global economy have yet to recover".
"In our view, one of the more interesting questions facing policymakers is how financial stability considerations should be incorporated into monetary policy decisions. For instance, to what extent could highly accommodative monetary policy engender financial stability risks?"