In the United Kingdom, policymakers put in place a range of measures to limit the buildup of risks in the housing market, and, partly as a result, the housing market appears to be cooling somewhat. Nonetheless, U.K. policymakers have acknowledged the potential for monetary policy adjustments to play a role in the pursuit of financial stability.
The Bank of England’s 2013 forward guidance had a specific financial stability “knockout” for monetary policy accommodation if the Financial Policy Committee (FPC) judges that the stance of monetary policy poses a significant threat to financial stability that cannot be contained by the substantial range of mitigating policy actions available to the FPC.11 If, in the future, the United States did face a similar dilemma, where financial imbalances are growing rapidly against a backdrop of subpar economic conditions, the Federal Reserve may consider monetary policy for financial stability purposes more readily than some foreign peers because our regulatory perimeter is narrower, the capital markets are more important, and the macroprudential toolkit is not as extensive.