Speech Chairman Ben S. Bernanke
At the Economic Club of New York, New York, New York
October 15, 2007
The Recent Financial Turmoil and its Economic and Policy Consequences http://www.federalreserve.gov/newsevents/speech/bernanke20071015a.htm
It does seem that, together with our earlier actions to enhance
liquidity, the September policy action has served to reduce some of the
pressure in financial markets, although considerable strains remain.
From the perspective of the near-term economic outlook, the improved
functioning of financial markets is a positive development in that it
increases the likelihood of achieving moderate growth with price
stability.
However, in such situations, one must also take seriously the
possibility that policy actions that have the effect of reducing stress
in financial markets may also promote excessive risk-taking and thus
increase the probability of future crises. As I indicated in earlier
remarks, it is not the responsibility of the Federal Reserve–nor would
it be appropriate–to protect lenders and investors from the consequences
of their financial decisions. But developments in financial markets can
have broad economic effects felt by many outside the markets, and the
Federal Reserve must take those effects into account when determining
policy. In particular, as I have emphasized, the Federal Reserve has a
mandate from the Congress to promote maximum employment and stable
prices, and its monetary policy actions will be chosen so as to best
meet that mandate.
At the Economic Club of New York, New York, New York
October 15, 2007
The Recent Financial Turmoil and its Economic and Policy Consequences
http://www.federalreserve.gov/newsevents/speech/bernanke20071015a.htm
It does seem that, together with our earlier actions to enhance liquidity, the September policy action has served to reduce some of the pressure in financial markets, although considerable strains remain. From the perspective of the near-term economic outlook, the improved functioning of financial markets is a positive development in that it increases the likelihood of achieving moderate growth with price stability.
However, in such situations, one must also take seriously the possibility that policy actions that have the effect of reducing stress in financial markets may also promote excessive risk-taking and thus increase the probability of future crises. As I indicated in earlier remarks, it is not the responsibility of the Federal Reserve–nor would it be appropriate–to protect lenders and investors from the consequences of their financial decisions. But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy. In particular, as I have emphasized, the Federal Reserve has a mandate from the Congress to promote maximum employment and stable prices, and its monetary policy actions will be chosen so as to best meet that mandate.