The Fed is comfortable blowing bubbles:

“The second category of bubble, what I call the “pure irrational exuberance bubble”, is far less dangerous …

Because the second category of bubble does not present the same dangers … as a credit boom bubble, the case for tightening monetary policy to restrain a pure irrational exuberance bubble is much weaker. …

But if bubbles are a possibility now, does it look like they are of the dangerous, credit boom variety? At least in the US and Europe, the answer is clearly no.

Tightening monetary policy in the US or Europe to restrain a possible bubble makes no sense… At this critical juncture, the Fed must not take its eye off the ball by focusing on possible asset-price bubbles that are not of the dangerous, credit boom variety.”

So said Fed Governor Frederic Mishkin. (CORRECTION: former Fed Governor)


posted by Quiddity at 11/09/2009 07:54:00 PM