“Federal Reserve Governor Jeremy Stein said some credit markets, such as corporate debt, are showing signs of potentially excessive risk-taking, while not posing a threat to financial stability.
“We are seeing a fairly significant pattern of reaching-for-yield behavior emerging in corporate credit,” Stein said Thursday in a speech in St. Louis.
Central bank officials, including Kansas City Fed President Esther George, are voicing increased concern that record-low interest rates are overheating markets for assets from farmland to junk bonds. Stein today cited leveraged loans and the junk bonds as areas that have been “very robust of late.”
The Fed should be open to using policy tools such as interest rates to safeguard stability, Stein said, while not suggesting the central bank take any such action now.
“I can imagine situations where it might make sense to enlist monetary policy tools in the pursuit of financial stability,” he said. “It will be important to keep an open mind” on using such tools, said Stein, a former Harvard University economist who specializes in banking and finance.
Chairman Ben S. Bernanke has argued for a clear separation between oversight and interest rate policy, saying regulation should be used to deal with asset-price bubbles. Last month he said he considers supervisory tools “the first line of defense” against such bubbles.
‘Not Enough’ …”
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