Policymakers have made little progress in figuring out how they might prevent another financial crisis from happening, a troubling reality highlighted at a conference that ended over the weekend at the Federal Reserve Bank of Boston, the New York Times reported today. The Fed has publicly committed itself to a strategy of so-called macroprudential regulation, meaning it is now focused on maintaining the stability of the financial system as well as the health of individual firms. But senior Fed officials at the Boston conference described such regulation as more of a goal than an achievement. “My own view is that while the use of macroprudential tools holds promise, we are a long way from being able to successfully use such tools in the United States,” said William C. Dudley, president of the Federal Reserve Bank of New York. In the meantime, the importance of prevention has only increased because the Fed’s ability to respond to the outbreak of a crisis has diminished. The 2010 Dodd-Frank Act prevents the Fed from repeating some aspects of its 2008 actions. More important, the Fed expects interest rates to remain below historic norms for the foreseeable future, leaving less room to cut rates, which has long been its first line of defense.
