Janet Yellen has mounted a forceful defence of the US Federal Reserve’s decision to keep monetary policy loose in the face of soaring asset prices, arguing that there was no need to increase interest rates to tackle financial instability because the central bank has other tools at its disposal.

In a clear signal of how the Fed intends to prevent a repeat of the 2008 crisis, its chairwoman suggested the central bank is more interested in having a resilient financial system that can cope when asset bubbles burst than it is in popping them through rate rises.

That means there is little chance of a rise in interest rates to head off exuberant stock or bond markets, suggesting that investors will be allowed to inflate and collapse asset classes as long as the underlying financial system is strong enough to withstand shocks.