If investors lose, ‘that’s on them,’ Fed’s Kashkari says

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Federal Reserve Bank of Minneapolis President Neel Kashkari on Monday Feb. 1, 2021,  became the latest central bank official to push back against the idea that the trading frenzy in GameStop Corp. and other hot stocks calls for a monetary policy response.

“GameStop has gotten a lot of attention. If one group of speculators wants to have a battle of wills with another group of speculators over an individual stock, God bless them,” Kashkari said while answering questions during a virtual town hall event.

“That’s for them to do, and if they make money, fine. And if they lose money, that’s on them,” he said. “I’m not at all thinking about modifying my views on monetary policy because of speculators in these individual stocks.”

GameStop shares were lower on Monday after rallying 1,600% in January. Hordes of day traders piled into the shares after noticing elevated short interest in the company in hopes that buying would force shorts to cover, driving the price ever higher.

Kashkari’s perspective on the potential for froth in financial markets echoed that of some other Fed officials. At a Jan. 27 press conference, Chair Jerome Powell declined to comment on the recent meteoric rise in of GameStop shares and those of similarly beaten-down companies. But he told reporters that the main forces propelling the stock market higher in recent months were vaccine developments and fiscal stimulus.

San Francisco Fed President Mary Daly chimed in on Jan. 29, arguing during a virtual event that she didn’t favor tightening up monetary policy, which would potentially slow the economic recovery, “simply to ensure that some people who already have stock market wealth don’t get more.”

The U.S. central bank has signaled it will hold interest rates near zero at least through 2023 and keep buying bonds at a $120 billion monthly pace until “substantial further progress” has been made on employment and inflation.

“The key now is for the Federal Reserve to keep our foot on the monetary policy gas until we really have achieved maximum employment,” Kashkari said.

Speaking at a separate event Monday, Dallas Fed President Robert Kaplan said that while supervisors had good visibility on the capital levels of big banks through stress-testing as they gauge the potential for systemic risks, he was monitoring the situation closely.

“Non-bank financials I’m watching very carefully — potential instability funding risks that might occur,” Kaplan said. “And I’m conscious of the fact that we’ve had to make these extraordinary moves that we’ve had at the Fed with interest rates and bond buying.”