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Dudley: Some Pockets In Financial Markets “Are Concerning”

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New York Federal Reserve President William Dudley spoke with FOX Business Network’s (FBN) Peter Barnes about bubbles in the financial markets saying, “there are pockets that are concerning” and that “Leverage loan markets for example are quite frothy.”  When asked about inflation getting out of control Dudley said, “that’s not going to happen” because “we actually have really good tools.”

Excerpts from the interview are below.

Dudley on how to ensure sure inflation doesn’t get out of control:

“Well, that’s not going to happen.  It’s not going to happen for the simple reason that we actually have really good tools.  The first tool we’ve got is our – in 2008, it’s part of the TARP legislation, the ability to pay interest on excess reserves so as we raise the rate that we pay banks on the reserves, that induces them to hold those reserves rather than lend those reserves out.”

Dudley on whether there are any bubbles in the financial markets:

“Well we look at the financial issues all the time to asset whether the current level interest rates is going to generate excesses in financial markets. Excesses that we need to be concerned about in terms of financial stability. I would say there are pockets that are concerning. Leverage loan markets for example are quite frothy, but that’s not a very big market. The thing that we don’t see that we saw in the run up to the last financial crisis is we don’t see a lot of increases in leverage and we don’t see a lot of credit growth.  So the absence of credit growth, the absence of leverage, the fact that the markets are frothy, are small rather than large, makes us reasonably confident that we don’t — that we’re not taking a lot of financial stability risk at the current time.”

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