Simone Baribeau

William C Dudley, New York Fed president, earlier this week called for central bankers to use the ‘bully pulpit’ to pop asset bubbles. Though Ben Bernanke, Fed chairman, has suggested that the Fed may be ready to consider addressing asset bubbles (until recently considered too difficult to identify to address), it was the first time that a Fed official spelt out which tools the Fed would use. Central bank officials have often used the red-herring that changing interest rates wouldn’t be effective in leaning against bubbles. (Sure – but aren’t there other tools?)

According to an interesting follow-up interview on NPR today, Mr Dudley tells Planet Money that he doesn’t think there is any “appreciable difference” between his views and those of Federal Reserve chairman Ben Bernanke.

Mr Bernanke hinted in his February testimony to Congress that the Fed – which had previously appeared not to see addressing asset bubbles as part of its mandate – may be on the verge of doing so, saying that there is no “obvious bubble” in the US economy but, if there were “then the response probably would depend on which asset it was, what part of the economy it was.” He went on to say that the Fed would “have to see what tools” it had to address it.

It turns out, of the tools Mr Dudley mentions, the bully pulpit – having central bank officials publicly talk about the bubble – is the first one he lists. Read more

Simone Baribeau

William C Dudley, president of the New York Federal Reserve, gave a particularly non-populist speech today in Puerto Rico. Giving non-populist speeches is, of course, the job of FOMC members: they worry about keeping the economy on track in the long-term, freed from short-term political considerations. But even so, Mr Dudley’s speech was candid.

After speaking at length about the ways in which failures in the US had negatively impacted the Puerto Rican economy, he suggested the US territory make a number of changes to mitigate the damage. Among them:

1. Raise taxes on lower-income workers.

Of course, he’s slightly more politic than that, but only just. Read more

Simone Baribeau

Willam C. Dudley, president of the NY Fed, today called for a systematic financial risk oversight framework, in which the Fed would play a key role.

“The financial system is simply too complex for siloed regulators to see the entire field of play, the prevent the movements of financial activity to areas where there are regulatory gaps, and, when there are difficulties to communicate and coordinate all responses in an timely and effective manner…I believe that the Federal Reserve has an essential role to play.”

And what of earlier Fed failures? Read more