Fed’s Rosengren says central bank needs to keep eye on financial stability risks

Federal Reserve officials need to keep a close eye on financial stability risks, and in particular keep an eye on rising home prices, Boston Fed Chairman Eric Rosengren said.

“Long periods of very low interest rates encourage people to take risks,” Rosengren said during a virtual conversation hosted by the New England chapter of the National Association of Corporate Directors.

Rosengren said the jump in home prices seen in some markets is similar to growth during the boom and bust of the previous housing crisis, although that pattern may not be repeated this time.

The policymaker said some markets that need support from the Fed at the height of the pandemic, including Treasury markets, mortgage-backed securities and money-market funds, need to be more resilient against shocks.

“The money-market fund reform that followed the last crisis has really made things worse and there has been no solution so far,” Rosengren said. Prime money-market funds “need to clean up.”

And the Fed official said regulators need to take a closer look at stablecoins, a type of cryptocurrency that is tied to more traditional currencies like the dollar, but could still experience volatility. “A ‘stablecoin’ is a misnomer,” Rosengren said.

His remarks come at a time when the Boston Fed is researching technology that could be used to develop a central bank digital currency, an issue that is getting more attention from Congress.

Rosengren said the research, which could be released as early as July, could show there is a promising technology that can handle large volumes of transactions in a short amount of time.

But some key policy questions on what the digital currency should achieve remain to be answered, he said.
Source: Reuters (Reporting by Johnelle Marte in New York, Editing by Rosalba O’Brien and Matthew Lewis)