Monetary Policy Is Not The First Line Of Defense Says Federal Reserve Chairperson

Federal Reserve Bank of USA is the most important central bank in the world also known as FED.

Traditional tool at the disposal of a central bank is the monetary policy.

Monetary policy means increasing decreasing the interest rate in the economy or increasing decreasing the money supply.

FED can do both. Last month FED increased the interest rate.

But FED chairperson Janet Yellen has said that monetary policy is not their first line of defense.

She said the increasing the interest rate to break the housing market bubble would have caused major economic damage.

According to her better regulation is the answer to excessive risk taking that triggered the recent financial crisis.

The regulatory framework that has been put in place after the stock market crash of 1929 saved US economy for many decades.

In 1980s President Ronald Reagan started removing most of the regulatory restrictions on Wall Street.

This relaxation of regulation on Wall Street continued in 1990s.

Ultimately the stock market crashed in 2008.