Two Fed officials have completely different views on whether continued low interest rates stand to raise the risks of financial instability.
Federal Reserve Bank of Chicago president Charles Evans believes low rates will not lead to financial problems, arguing instead low rates have become an anchor as investors assume they will continue into the long term, Bloomberg reports. On the other hand, Boston Fed president Eric Rosengren says high commercial real estate valuations are a major risk to the banking sector should prices decline significantly.
This debate centers on one question: Does the Fed need to raise rates before inflation hits the 2% target to help reduce the risks of financial bubbles? For now, the Fed remains divided. [Bloomberg]
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