Federal Reserve Governor Frederic Mishkin argued on Monday that his decisions to vote for recent cuts in the Fed's key benchmark lending rate were meant to help the overall economy, not a bail out financial markets.
At a gathering of bankers in Washington DC, Mishkin said that monetary policy is one of the tools the Fed uses to promote financial stability by minimizing market uncertainty.
Mishkin said â€¦policies to achieve this goal are designed to help Main Street and not to bail out Wall Street, Mishkin said.
On September 18, the Federal Reserve's policy makers voted unanimously to lower the interest rate of its benchmark Fed funds rate by 50 basis points to 4.75 percent. The Fed said the cut was meant to forestall any damage to the wider economy from the problems encountered in financial markets due to bad bets in the subprime mortgage sector. The Fed then voted 8 to 1 on October 31 to cut the rate to 4.50 percent.
Pursuing such policies does help financial markets recover from episodes of financial instability, and so it can help lift asset prices, Mishkin said.
But this does not mean that market participants who have been overly optimistic about their assessment of risk don't pay a high price for their mistakes.