Multiple objectives for the US Fed

Stephen Roach of Morgan Stanley argues in favour of the US Fed having multiple policy objectives. In addition to price stability and full employment, the two objectives it has at present, there should be a third: financial stability.

By adding “financial stability” to the Fed’s policy mandate, I am mindful of the pitfalls of multiple policy targets. However, single-dimensional policy targeting does not cut it in a complex world. As such, the Fed will need to be creative in achieving its mandated goals – using monetary policy, regulatory oversight and enforcement and moral persuasion. Just as the Fed has been reasonably successful in its twin quests for price stability and full employment, I am confident it can rise to the occasion with the addition of financial stability to its mandate.....

In times of asset-market froth, I favour the “leaning against the wind” approach with regard to interest rates – pushing the Federal funds rate higher than a narrow inflation target might suggest. But there are other Fed tools that can be directed at financial excesses – margin requirements for equity lending as well as controls on the issuance of exotic mortgage instruments (zero-interest rate products come to mind)

The methods Roach advocates in the second para above are ones that the RBI has not hesitated to use. And the RBI has long had multiple objectives, including financial stability. I wonder what the Raghuram Rajan committee has to say now about its insistence on price stability as the sole objective for the RBI!