BOSTON—Federal Reserve Bank of New York President William Dudley said Saturday the U.S. tool kit to deal with financial imbalances remains some distance from where it needs to be.

"My own view is that while the use of macroprudential tools holds promise, we are a long way from being able to successfully use such tools in the United States," Mr. Dudley said in the text of remarks to be delivered at a conference held by the Boston Fed.

Mr. Dudley was addressing the stable of tools authorities have, or aspire to posses, to smooth over financial imbalances that emerge in the economy. Fed officials and many others would rather use these set of facilities to quell brewing bubbles rather than to use the blunt tool of raising interest rates, which comes with a cost to the broader economy in terms of weaker employment levels and slower growth. Given the genesis of the Great Recession, authorities around the world have a great interest in knowing how to stop bubbles from rising to levels that would threaten the performance of the economy as a whole.

Mr. Dudley, a close ally of Fed Chairwoman Janet Yellen, didn't address the monetary policy outlook in his remarks. At the same time, he said he doesn't see any imminent threat when it comes to bubbles in the financial sector.

"While we work to sort all this out, we should take considerable solace from the fact that we have made the financial system more resilient to shocks," Mr. Dudley said. While it may be hard to spot the next round of imbalances, "with higher capital and liquidity requirements and the use of stress tests to assess emerging vulnerabilities, I think we are much better placed than we have been in the past," he said.

Mr. Dudley allowed that the very process of trying to spot a brewing bubble is unsettled. Also, unlike with interest rate policy choices and some forms of regulation, "there is not a well-defined framework for identifying emerging imbalances and applying macroprudential tools in response," he said.

What's more, getting the hodgepodge of U.S. regulatory authorities to recognize the problem and come up with an effective response can be difficult. "Timely implementation" is likely to be a problem because "the U.S. regulatory structure is fragmented, so that in most cases, no single regulator is able to implement macroprudential tools in a comprehensive manner."

Mr. Dudley said he sees some value in creating "hard-wired" rules in policies that would address brewing imbalances. But he also warned "my concern is that we could over-engineer the financial system, building in complexity in response to potential risks that might, or might not, manifest themselves in the future."

Write to Michael S. Derby at michael.derby@wsj.com

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(END) Dow Jones Newswires

October 04, 2015 20:55 ET (00:55 GMT)