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

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 18,130.86 50.72 0.28%
Nasdaq 5,100.96 8.87 0.17%
S&P 500 2,121.42 3.73 0.18%
Treasuries 1.94 0.02 1.04%
Data as of 11:33am ET
Company Price Change % Change
Applied Materials In... 20.31 -1.49 -6.86%
Apple Inc 132.61 2.33 1.79%
Microsoft Corp 47.69 -0.18 -0.38%
Bank of America Corp... 15.69 0.05 0.32%
Facebook Inc 82.57 1.04 1.27%
Data as of 11:18am ET
Sponsors

Sections

The tech-heavy index, home to Apple, Facebook and Google, is finally back above 5,000 and at a new all-time high. Some think it could hit soon 6,000. But are investors too enthusiastic? More

A major earthquake was the last thing Nepal needed. Even before one of the country's major fault lines rumbled to life, the country was beset by challenges. More

Microsoft is ending support for Microsoft Server 2003 in July. That means no more patches and upgrades -- and more exposure to hackers. More

A Girl Scouts Cookie Oven rolling out to Wal-Mart, Target, Kmart stores this summer will let you bake those iconic thin mints right at home. More

Imagine having a three-day weekend every week and being paid the same full-time salary. It can be done if your employer offers you the option of a compressed workweek. More