Fed Officials Assure America There Is No Bubble In Sight
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In New York this week, Eric Rosengren, President of the Federal Reserve Bank of Boston, assured several audience members surrounding him after a speech on financial market regulation that he saw “no bubbles of any kind, even in real estate,” where he reckoned residential home prices were still selling at a discount to the peak values in 2006. He added that residential homes in Boston and New York were selling at a 10% to 20% discount from the records set before the great recession while prices in Miami, Phoenix and California were at even further below the peak. Rosengren is a member of the Fed’s Open Market Committee that rules over the application of monetary policy and especially the level of interest rates. He made it clear he would support the Fed’s record low interest rates until there is more “traction” in the economic recovery nationally.
This comforting opinion has also been articulated in recent weeks by both Ben Bernanke, the Federal Reserve Board Chairman, other regional central bank presidents and even a leading policy maker at the Bank of England.
On March 20, 2013, for instance, Chairman Bernanke exclaimed clearly that “in the stock market, you know, we don’t see at this point anything that’s out of line with historical patterns. In particular… while the Dow may be hitting a high, it’s in nominal terms, not in real terms. And if you adjust for inflation and for the growth of the economy… we’re still some distance from the high.” He also was of the opinion that “the relationship between stock prices and earnings is not particularly unusual at this point.”
As well, Chicago Federal Reserve President Charles Evans said recently; ” We’ve looked at a lot of things and there’s nothing in the horizon that causes me great angst. Minneapolis Federal Reserve President Narayana added that bubbles are “ something we have to keep monitoring”, but ” I don’t see” any risk at present.
During a recent panel discussion at the Boston Fed a Bank of England official, David Miles, weighed in with his level of comfort by saying ” I don’t think we’re in that kind of territory that obviously makes these asset prices unsustainable and at a bubble level.”