Bernanke: Monetary policy could be stability tool (by Greg Robb)
WASHINGTON (MarketWatch) - The Federal Reserve might have to hike interest rates if it saw a potential threat to financial stability, Federal Reserve Board Chairman Ben Bernanke said Tuesday. Many Fed officials argued before the financial crisis that using interest rates to pop an asset bubble would be too blunt and analysts now say the Fed could use new bank supervisory powers to curb risks like excessive credit growth. But Bernanke said regulatory tools remain unproven. "The possibility that monetary policy could be used directly to support financial stability goals, at least on the margin, should not be ruled out," he said. Bernanke also said the Fed would stop buying assets if economic conditions returned to normal. But the Fed would still use new forms of forward guidance and other forms of communications about policy that have evolved during the crisis, he said.