By Brian Wheeler
BBC News, Labour conference, Manchester
Ms Ussher will help take banking reforms through Parliament
The government knew there was a "bubble" in house prices but was not tempted to take control of interest rates, the City minister has said.
Kitty Ussher said the Bank of England had thought it appropriate to keep interest rates low.
And she rejected calls by Labour MP Jon Cruddas for a rethink of the way rates are set following recent turmoil.
Ms Ussher was speaking at a Smith Institute/Progress fringe meeting at Labour's conference in Manchester.
The Bank of England was handed control of interest rates in 1997, in one of Gordon Brown's first acts as chancellor. It aims to meet an inflation target set by the government.
Ms Ussher, who will be helping to guide the government's banking reforms through Parliament, rejected calls for the Bank of England's remit to be widened to include such things as the housing market or maintaining full employment.
She told the meeting house prices had been over-valued and may now dip to the point where they are under-valued before rebounding again.
But she stressed that the Bank of England was right to focus on keeping inflation down in the medium term as that was the only way to stave off a long recession.
Tackled afterwards about whether the government should have taken action on house prices when it knew there was a bubble, she said they had raised stamp duty.
She denied the government should have issued more warnings to consumers about the overheating housing market.
"Everybody knew - it was all over the newspapers at the time," she told the BBC News website.
Tax cut call
Asked if the government should have taken more action, she said: "That is the whole point of Bank of England independence, to end political meddling with that kind of thing."
And she rejected calls for the Bank of England's remit to be widened to take more account of factors such as the housing market and achieving full employment.
She said she agreed with the governor of the Bank of England's assessment that controlling inflation would make the difference between a "long downturn and a short downturn" - and that had to be the top priority for the government.
Jon Cruddas has called for a wholesale rethink of Labour's economic policy following recent economic turmoil, calling for tax cuts for middle income and low paid workers and a "debate" on Labour's interest rate policy.