WASHINGTON, May 7 (Xinhua) -- Randal Quarles, vice chair for supervision of the U.S. Federal Reserve (Fed), downplayed the leveraged loan risks on Tuesday after the Fed warned of the record high debt owed by U.S. businesses.
During an open event at Yale University, Quarles addressed some questions brought up by the Fed's latest semi-annual financial stability report released on Monday, saying that the high volume of leveraged loan "is not a direct analogue to the subprime lending from before the crisis, but it does create issues that (are) worth thinking about."
According to the Fed report, the central bank saw "borrowing by businesses is historically high relative to gross domestic product (GDP)," as well as "the most rapid increases in debt concentrated among the riskiest firms."
As the chair of the Financial Stability Board, an international body that monitors and makes recommendations about the global financial system, Quarles said media reports and even policy discussions had oversimplified the real status of leveraged loan risks by describing them as "earth must be getting hit by an asteroid."
"The business credit is very high currently, but it always grows, it hasn't grown to a level that's inconsistent with historical precedent for this point on an expansion," Quarles said, adding "the volume is high, it's worth looking at, but it's not unusually high."
Besides, the vice chair expressed his tolerance on whether the inflation rate in the United States could land on the central bank's 2 percent target, which the U.S. economy struggled to reach.
"I don't share the concern, that some have, that if we're at 1.8 percent inflation for a significant period of time, that this is a problem that needs to be fixed," said Quarles, "from my point of view, 1.8 is 2."
"I would not undergo heroic efforts, including re-thinking our monetary policy framework, or significant monetary policy stimulus, in order to edge 1.8 percent up to 2 percent," he added.
