Wednesday, July 02, 2014

Yellen


Yellen: Monetary policy not the right tool to curb financial excesses by Ylan Q. Mui

"...Yellen argued that those weapons would likely be more effective than the blunt tool of monetary policy. To make her point, she rebutted a common criticism that the Fed primed the stage for the Great Recession by waiting too long to raise interest rates, allowing home prices to rise unabated and encouraging investors to pile on risk.

Yellen conceded that policymakers “failed to anticipate” the ensuing global financial crisis but also argued that monetary policy would have been “insufficient” to address the problems that caused it. Higher rates would not have beefed up regulation or increased the transparency of the exotic new financial instruments at the heart of the crisis -- or the firms that helped generate them.

In fact, Yellen said that raising rates would likely have caused greater unemployment, which would likely have led to more people defaulting on their debts."

How does John Taylor respond?

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