Chicago Fed President Charles Evans (non-voter) said the Federal Reserve price support may expose its balance sheet to risk.
Delivering remarks on 'Challenges that the Recent Financial Market Turmoil Places on our Macroeconomic Toolkit' at the Swiss National Bank's Research Conference, Evans said that by taking illiquid collateral, the Federal Reserve has set a price floor.
"Over the years, the research community and policy-makers have developed a good framework for thinking about monetary policy reactions to real-side shocks," Evans said. "However, unlike real shocks, we don't, as yet, have such a well-developed toolkit with which to analyze financial shocks.
Evans added that it was unclear when financial markets will return to normal.
Evans offered no comments on monetary policy.
By Steve Stecyk and edited by Stephen Huebl
©CEP News Ltd. 2008