“We’re in a very different world today,’’ he told reporters on March 20, arguing that the Fed is much more attuned to such risks than it was back then. “We don’t see financial stability vulnerabilities as high,’’ he added.

Powell also subscribes to the traditional Fed view that financial risks are best addressed via enhanced supervision and regulation rather than through changes in interest rates.

“Ultimately I am in a camp of thinking that monetary policy is not at all the ideal tool to address these questions,’’ he told the Economic Club of New York last November, though he did allow that there seemed to be a connection between low interest rates and credit growth and asset prices.

The problem for the Fed is that the U.S. has a limited set of supervisory and regulatory tools available to address financial stability risks, as Vice Chairman for Supervision Randal Quarles acknowledged in a speech last week.

The trade-off between financial stability and inflation might become more acute if the Fed changes its framework for achieving its price target when it completes a wide-ranging monetary strategy review next year.

Plan B
While Powell has ruled out increasing the 2 percent goal, he’s raised the possibility that the central bank could adopt a “make-up’’ strategy -- letting inflation run above target during good times like now, to offset the periods of slower price rises. The aim would be to convince consumers and companies that the Fed is committed to reaching its objective after years of mostly undershooting.

But to achieve that the Fed might have to keep interest rates lower for longer -- a strategy that would likely find favor in financial markets.

Former Fed Governor Jeremy Stein voiced doubts that inflation expectations are as important as some current policy makers believe.

“I don’t think the guy in the taco truck downstairs is going to set a higher price for tacos because the Fed says it’s aiming for 50 basis points higher inflation,’’ said Stein, who is now a Harvard University professor.

He also saw risks in the Fed adopting a strategy in which it explicitly aims for inflation above target for a while.