Fed needs to consider asset bubbles: Williams (by Steve Goldstein)

WASHINGTON (MarketWatch) -- Significant risks remain that another asset bubble could develop, and monetary policy needs to take that into account, said San Francisco Fed President John Williams at an International Monetary Fund event in Washington. "Financial stability should not be thought of as a distinct goal from macroeconomic stability and, therefore, inherently separate from traditional monetary policy. Instead, risks to financial stability are first and foremost risks to future economic activity and inflation," he said. He also noted that Dodd-Frank legislation now restricts the Fed's ability to provide liquidity to individual institutions and to nonbanks, and that the political climate may make it difficult for fiscal authorities to take actions like injecting capital into banks or guaranteeing money-market funds. "These considerations suggest that the risk of runs in financial markets remains a very real concern for financial and macroeconomic stability," Williams said.