Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said he sees changes in asset markets since 2007 including greater concern about risk that may reverse “only slowly.”
Borrowing constraints have tightened and the supply of what are considered safe assets has declined, Kocherlakota said today in slides prepared for a speech in Istanbul.
U.S. central bankers are trying to understand shifts in financial markets and the economy following a housing crash that led to the worst recession since the 1930s. The Fed has kept interest rates near zero since December 2008 and has expanded its balance sheet to more than $3.3 trillion to support the recovery.
The supply of what are considered risk-free assets has shrunk because sovereign debt has become riskier and U.S. property values are lower, the Fed district bank chief said. More research is needed on how nominal wages respond to an excess amount of labor, said Kocherlakota, who doesn’t vote on the Federal Open Market Committee this year.
The slides released today don’t include a discussion on the outlook for monetary policy or the economy.
To contact the reporter on this story: Aki Ito in San Francisco at firstname.lastname@example.org.
To contact the editor responsible for this story: Christopher Wellisz at email@example.com