An environment of prolonged low short-term rates could prompt an excessive buildup in leverage or cause underwriting standards to erode as investors take on risks they cannot measure or manage appropriately in a reach for yield. 16 At this point the evidence indicates that such vulnerabilities do not pose a significant threat, but the Committee is carefully monitoring developments in this area.
17 Moreover, in my view, macroprudential regulatory and supervisory tools should serve as our first line of defense in addressing these risks.