Bernanke’s comments on asset prices today confirm what I wrote on this blog more than a month ago. The Fed is keeping an eye on US asset prices, even though it does not currently judge them to be overvalued. Its preferred technique for dealing with future bubbles is through expanded regulatory powers including new systemic risk or macroprudential powers. But in the interim - while these powers do not exist – it will take asset prices into account when setting monetary policy and might use interest rates to combat an emerging bubble that threatened its dual mandate objectives.
