Vice Chairman dissents

Janet Yellen said the super low rates would prompt risk-taking.

Janet Yellen, in her first public remarks as the Federal Reserve's vice chairman, said low interest rates may give firms the incentive to engage in excessive risk-taking.

"It is conceivable that accommodative monetary policy could provide tinder for a buildup of leverage and excessive risk-taking in the financial system," the 64-year-old central banker said in a speech today in Denver.

Yellen warned that Fed policies may in some cases be encouraging firms to "reach for yield" and could present officials "with difficult tradeoffs" if "emerging threats to financial stability become evident."

She was just sworn in as vice chairman of the Federal Reserve Board a few days ago, filling a void left by Donald Kohn who served the Fed for 40 years. Earlier this month, Steven K. Beckner of iMarketNews.com suggested that

Yellen has not spoken publicly in months, but hers has been a consistent voice warning about the dangers of excessively low inflation in a weak economic environment.

His assessment on Yellen is consistent with her yesterday's remarks. The question at this moment is; Why now? We have three weeks before the next FOMC, so there is ample time to discuss what to do at the FOMC. But Bernanke looks like sure to head for QE2, and inflation rates are not about to rise significantly for now. Donald Kohn would not dissent from chairman's idea. Is this the new vice chairman's way of steering monetary policy? I have no idea, but we have to see how they cooperate at the FOMC.