Federal Reserve Chairman Ben Bernanke said on Tuesday central banks may need to use monetary policy to combat asset bubbles, although regulation should be a first line of defense.
The possibility that monetary policy could be used directly to support financial stability goals, at least on the margin, should not be ruled out, he said at a conference at the Boston Fed.
Bernanke did not directly discuss the outlook for the U.S. economy or monetary policy in a speech in which he offered thoughts about how central banks will formulate policy.
He said it was unlikely central banks would shift away from the current focus on so-called flexible inflation targeting, in which they make clear their inflation goals as a way of ensuring the public's expectations of inflation remain low.
Bernanke said that in the United States, policymakers were still striving to refine their communications. The (Fed) continues to explore ways to further increase transparency about its forecasts and plans, he said.
To help spur stronger growth in a persistently sluggish economy, the Fed is considering ways to assure financial markets it won't tighten financial conditions any time soon. Among items under discussion are setting explicit goals for inflation or unemployment.
(Reporting by Kristina Cooke; Writing by Mark Felsenthal; Editing by James Dalgleish)