Yellen sees little threat to financial stability

WASHINGTON – Federal Reserve Chair Janet Yellen said Wednesday that she doesn’t see a need for the Fed to start raising interest rates to defuse the risk that extremely low rates could destabilize the financial system.

Yellen said she does see “pockets” of increased risk-taking. But she said those threats could be addressed through greater use of regulatory tools. Many of those tools, such as higher capital standards for banks, were put in place after the 2008 financial crisis, which triggered the Great Recession.

In her remarks at a conference sponsored by the International Monetary Fund, Yellen disputed criticism that the Fed had contributed to the 2008 crisis by keeping rates too low. Yellen acknowledged that financial stability risks “escalated to a dangerous level in the mid-2000s” and that policy-makers overlooked the vulnerabilities in the financial system that would make the decline in home prices so destabilizing.