SAN FRANCISCO/ NEW YORK (Reuters) - Stanley Fischer, U.S. President Barack Obama’s pick to be the Federal Reserve’s next vice chair, called on Wednesday for financial stability to be an “explicit focus” of Fed policy, alongside the congressionally mandated goals of price stability and maximum employment.
“The Great Recession has driven home the lesson that the Fed has not only to fulfill its dual mandate, but also to contribute its part to the maintenance of the stability of the financial system,” Fischer said in written testimony released on Wednesday for a Senate confirmation hearing set for Thursday. “Almost always, these goals are complementary. But each of them must be an explicit focus of Fed policy.”
Fischer, the former chief of the Bank of Israel, was chosen to be Fed Chair Janet Yellen’s second-in-command in part for his deep experience in crisis management, especially during a seven-year stint as the No. 2 official at the International Monetary Fund.
While he also called for “the continuation of an expansionary monetary policy” to bring down overly high unemployment and boost uncomfortably low inflation, Fischer’s forceful remarks about financial stability stood out.
Frustrated with the slow recovery from the 2007-2009 recession, the Fed has kept interest rates near zero for more than five years and has bought trillions of dollars in bonds to stimulate investment and hiring even more.
While the central bank is now reducing the pace of its purchases, worries are growing that the unprecedented accommodation has stoked risky asset-price bubbles that could destabilize financial markets and harm the economy again.
Fischer made it clear that he’ll also be strongly focused ensuring the Fed does “everything we can” to beef up bank supervision to prevent another financial crisis.
Lael Brainard, a former deputy at the Treasury Department nominated to be a Fed governor, and Fed governor Jerome Powell, who has been renominated, also stressed the importance of financial stability in their prepared testimony.
“I cannot think of a more important moment for the work of the Federal Reserve in promoting price stability and maximum employment alongside financial stability,” Brainard said.
Said Powell: “The task for monetary policy will be to provide continued support as long as necessary, and to return policy to a normal stance over time without sparking inflation or financial instability.”
Confirmation of the nominees would bring the Fed’s policymaking panel up to 11, just shy of its full 12-member maximum, with the pending departure of Governor Sarah Bloom Raskin. The U.S. Senate on Wednesday confirmed her to be the No. 2 official at the Treasury Department.
Reporting by Ann Saphir and Jonathan Spicer; Editing by Chizu Nomiyama