[WASHINGTON] A top Federal Reserve official warned on Friday that loose US monetary policy may have fueled increased risk-taking through leveraged borrowing in the United States and syndicated loans abroad.
Fed Governor Jerome Powell said the US central bank must be mindful of how its policies affect the bets made by investors at home and in other countries, though he said market volatility was unlikely to have "important implications" for US policy. "Some pockets of increased risk-taking by banks and other investors are observable in domestic markets," he said at a conference on central banking. "And on the international front, there has been a notable increase in syndicated loan originations." Powell's remarks suggested Fed officials were concerned that these markets could shift abruptly once the US central bank begins tightening monetary policy. The Fed has held benchmark US interest rates near zero for nearly six years, but it is expected to begin bumping them higher in 2015.
Last year, when then-Fed Chairman Ben Bernanke hinted at an eventual end to the US central bank's stimulative bond buying, emerging markets went into a tailspin - an episode Powell alluded to in his remarks.
He said that while US investors did not appear to be taking "worrisome" risks when it came to their holdings of emerging market bonds, even small shifts in huge US holdings could shake smaller developing nations. "We take the consequences of such spillovers seriously, and the Federal Reserve is intent on communicating its policy intentions as clearly as possible in order to reduce the likelihood of future disruptions to markets," he said.