As a currency trader, you need to be an expert in reading what the central banks are doing. One of the most important important central bank is the US Federal Reserve Bank also known as the FED. Janet Yellen is now the Chairperson of FED. In her speech on Wednesday, she said monetary policy has limitations when it comes to promoting financial stability.
Monetary policy faces “significant limitations” as a tool to counter financial stability risks, Federal Reserve Chair Janet Yellen said on Wednesday, adding that heading off the U.S. housing bubble with higher interest rates would have caused major economic damage. Weighing in on a global debate, Yellen reiterated her view that regulation – not rate policy – needs to play the lead role in combating excessive financial risk-taking.
She is right. This is the view of the top economists who think that the recent stock market crash happened due to poor regulation. If the regulatory framework had not been weakened significantly in the 1980s and 1990s, the market crash could have been easily averted. The markets need to be regulated in order to avoid failures. This is what Econ 101 also teaches.
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