Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Fed's Yellen: Low rates can fuel bubbles

By Annalyn Censky, staff reporter


DENVER (CNNMoney.com) -- When low interest rates stay too low for too long, easy money can fuel asset bubbles, Janet Yellen told a room full of economists Monday, in her first public remarks as the Federal Reserve's new vice chairwoman.

Yellen confirmed in her speech that the central bank is aware of some of the risks of its policy of holding rates at historic lows, but she didn't go so far as to hint at the Fed's next move.

"It is conceivable that accommodative monetary policy could provide tinder for a buildup of leverage and excessive risk-taking in the financial system," she told a packed ballroom at the National Association of Business Economics conference in Denver, Monday.

In an effort to stimulate the economy, the Federal Reserve has held interest rates unchanged between 0% and 0.25% since December 2008.

As the economic recovery has shown signs of weakness this year, the Fed has adamantly stuck to that policy, with all but one member of the Fed's policymaking committee voting in favor of keeping rates "exceptionally low" for an "extended period"

Wall Street has recently turned its attention to the Fed's next policymaking meeting in November. There is much speculation that the Fed will expand its so-called policy of quantitative easing by announcing a new round of asset purchase.

Yellen offered little clues as to what the central bank will do in November. But she did say regulators need to have rules in place to prepare "to take away the punch bowl" of stimulative monetary policy.

Yellen also pushed for stronger rules and regulations on the financial sector, in line with a sweeping Wall Street reform bill signed into law by President Obama earlier this year. To top of page

Index Last Change % Change
Dow 18,475.42 -17.64 -0.10%
Nasdaq 5,115.16 17.53 0.34%
S&P 500 2,170.08 1.60 0.07%
Treasuries 1.58 0.01 0.70%
Data as of 10:37am ET
Company Price Change % Change
Freeport-McMoRan Inc... 11.96 -0.42 -3.35%
Gilead Sciences Inc 81.55 -7.00 -7.91%
Chesapeake Energy Co... 5.27 0.13 2.53%
Bank of America Corp... 14.43 0.06 0.42%
Micron Technology In... 14.29 0.37 2.66%
Data as of 10:21am ET
Sponsors

Sections

HSBC banker arrested at JFK airport as he prepared to leave the country. He and former trader face federal charges they manipulated currency trades. More

The Democratic Party's platform for its convention is clear when it comes to the Federal Reserve: it needs more diversity and less Wall Street More

Scientists at MIT are working on movie screen technology that would project high-res 3D imagery without relying on glasses. More