Federal Reserve Chairman Ben Bernanke, in a speech on the 100-year history of the U.S. central bank that made no direct reference to current monetary policy, said on Wednesday that policymakers have learned the hard way to treat financial stability as a top goal.
"The recent crisis has underscored the need both to strengthen our monetary policy and financial stability frameworks and to better integrate the two," he said in remarks prepared for delivery to a conference sponsored by the National Bureau of Economic Research.
Bernanke began with a spoiler alert that he would leave any observations about current policy to an audience question-and-answer session at the end of his speech, as well as to two days of congressional testimony that he will deliver next week.
Bernanke is to address the House of Representatives Financial Services Committee on July 17 and the Senate Banking Committee on July 18.
In a sweeping description of how the Fed has evolved since its creation by Congress in 1913, Bernanke noted that the prolonged period of low inflation and steady growth between 1984 and 2007, dubbed the Great Moderation, may have contributed to excess risk-taking that led to the subsequent crisis.
"The idea that this long period of calm lulled investors, financial firms and financial regulators into paying insufficient attention to building risks must have some truth in it," he said. But that does not mean policymakers should not strive for economic stability.
"Rather, the right conclusion is that even in, or perhaps, especially in, stable and prosperous times, monetary policymakers and financial regulators should regard safeguarding financial stability to be of equal importance as, indeed, a necessary prerequisite for, maintaining macroeconomic stability," he said.
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