According to the Financial Times, one of the fears among some Fed officials is that the US central bank could be forced to raise interest rates earlier than it would like if financial sector risks are not kept under control and dangerous asset bubbles emerge.

Lael Brainard, a Fed governor, said in a speech last month that expectations of extended low interest rates were “conducive to increasing risk appetite, reach-for-yield behaviour and incentives for leverage,” thereby boosting “imbalances” in the US financial system. She said it was “vital to use macroprudential” tools—meaning rules designed to curb risks—“as well as standard prudential tools as the first line of defense in order to allow monetary policy to remain focused on achieving maximum employment and 2 per cent average inflation.”



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