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Is ultra-loose monetary policy fuelling new asset price bubbles? The Fed view is that there is little evidence of this in the US. But it is keeping an eye out all the same.
US house prices may have bottomed but they have not bounced. The equity risk premium on stocks remains high by historic standards. Commodity price strength can be explained by vigour in emerging economies.
The government bond market is a possible exception. In their last minutes Fed policymakers said they were puzzled by bond prices. There could be something of a bubble here, fuelled by Fed asset purchases and banks playing the yield curve. And its deflation could be disruptive. But in general - no great alarm about asset prices.
Indeed the Fed wanted asset prices to rally, up to a point, as part of the transmission mechanism by which monetary policy impacts the economy. Still, after the experience of the past couple of years the Fed is not ignoring asset prices and continues to monitor them carefully.
The US central bank hopes in future to deal with asset and credit bubbles via new regulatory tools, including systemic risk or macroprudential instruments rather than interest rates. But by and large these tools do not exist yet. So if compelling evidence of asset price bubbles were to emerge in the interim the Fed would have to consider whether to lean against the wind with interest rates. I think in certain circumstances policymakers could be open to that.
The more imminent risk, though, surely is that ultra-easy policy in the US, eurozone, UK and Japan helps to fuel asset price bubbles in emerging market such as China, Brazil and India - and small industrialised economies that largely escaped the crisis such as Australia.
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Green shading indicates rates that have risen; yellow indicates rates expected to rise, with date of next meeting (not necessarily the expected date of increase)Hot topicsbanking bank of england banks bonds bundesbank central banks china climate change currencies dollar ECB equities exit strategy FDIC fed fiscal consolidation G20 GDP Germany growth IMF inflation interest rates labour market latvia liquidity MBS mervyn king monetary policy money supply MPC output gap property protectionism public finances quantitative easing recession recovery reserves stimulus trade trade imbalances UK UK treasury unemploymentYour blogging team Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. Krishna Guha, US economics editor and deputy Washington bureau chief, is the FT's chief Fed-watcher. He leads coverage of the US economy, the IMF and the World Bank, writing on the global economy for 15 years. Educated at Cambridge and Harvard, Krishna was a Fulbright and CV Starr scholar. He has worked as an FT economics editorial writer and Lex columnist. Ralph Atkins, Frankfurt bureau chief, has been writing about European economics and politics for the Financial Times for more than 20 years following an economics degree from Cambridge. He has been watching the European Central Bank and eurozone economies since 2004. He has previously worked in London, Bonn, Berlin, Jerusalem and Brussels. Mure Dickie, the FT's Tokyo bureau chief, has spent most of the past two decades in East Asia. A speaker of Chinese and Japanese, he joined the FT as Taipei correspondent in 1998 and was Beijing correspondent from 2003 to 2008. Before that he was a journalist and editor for Reuters news agency in Beijing and Tokyo. The FT's Money Supply blog: a guide Comment: To comment, please register with FT.com. Register for free here. Please also read our comments policy here. Contact us: You can reach us using this email format: firstname.surname@ft.com Time: UK time is shown on our posts. Follow us: Links to our Twitter and RSS feeds are at the top of the blog. clientAds.fetch(AD_MPU); clientAds.render(AD_MPU); Blogroll BBC > Stephanomics Economist > Buttonwood Economist > Free Exchange Economists’ View FT > Alphaville Greg Mankiw Naked capitalism Paul Kedrosky > Infectious greed PIIE > Real time Reuters > Felix Salmon Reuters > Macroscope WSJ > Real-time economics Martin Wolf's Economists' Forum Leading economists discuss topics raised by Martin Wolf, the FT's chief economics commentator, and others. Selected FT blog postsFT Alphaville - CDS report: Credit rally loses momentumFT Alphaville - Crystal ball gazing with GoldmanFT Alphaville - More evidence speculators are not to blame for commodity movesEconomists' Forum - Further reading: "?Too big to fail', executive pay, stimulus by FTFT Alphaville - On the 80th anniversary of the Great Crash of 1929"¦Full list of FT Blogs Alphaville The FT's financial blog Arena A forum for topical debates Brussels blog Tony Barber on the EU's foreign and economic policies Clive Crook's blog The intersection of politics and economics in the US Dear Lucy Columnist Lucy Kellaway and readers solve workplace woes Don Sull's blog How to lead more effectively during turbulent times Dragonbeat A closer look at China's economy, society and global impact Economists' Forum Leading economists debate issues raised by Martin Wolf Editors' blog Insights from the FT's newsroom Energy Source Insight into energy markets, companies and policy FTfm blog Views on the fund management industry Health blog Discussion covering all aspects of healthcare John Gapper's blog John Gapper on business, finance, media and technology Management blog The latest thinking on the challenges facing managers Money Matters Insight into the personal finance industry Science blog Clive Cookson looks at science developments Tech blog The intersection of technology and business Undercover Economist Tim Harford's blog on economics in everyday life Westminster blog The latest news and gossip from the UK's political scene Willem Buiter's Maverecon The LSE professor on economics, politics and more Help•About us•Sitemap•Advertise with the FT•Terms & Conditions •Privacy Policy•Copyright© The financial Times Ltd 2009 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
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