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5/17/2017, 8:39 PM (Source: TeleTrader)
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Kashkari: Policy shouldn't target stock, home values

"The Fed’s job is not to protect investors. It is to promote financial stability. Sometimes those overlap. Not always," said Neel Kashkari, head of the United States central bank's subsidiary in Minneapolis. In an essay published on Wednesday, he explained a bubble in real estate concerns large leverage and that a correction can have painful consequences, but that lifting interest rates can also do damage. He also said he believes the risk of making a policy mistake in targeting potential imbalances in that sector as well as in the stock market is too high. All in all, curbing asset prices with rates isn't as effective as supervisory measures, Kashkari stressed.

"For example, if we see a bubble forming in commercial real estate, raising interest rates won’t affect just the commercial real estate market, but also housing, automobiles, consumer borrowing and capital-intensive industries, among others. We may want consumers to keep spending, but condo prices to stop rising," the Minneapolis Fed's president stated and concluded both would be slowed down with higher rates of interest.

In Kashkari's view, policymakers would need to be prepared to risk pushing the economy into a recession before turning to tightening measures to contain asset price inflation.

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