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

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