Fed Seems Resigned to Bubble Risk in Effort to Extend Expansion
Comment of the Day

April 25 2019

Commentary by Eoin Treacy

Fed Seems Resigned to Bubble Risk in Effort to Extend Expansion

This article by Rich Miller for Bloomberg may be of interest to subscribers. Here is a section:

But that monetary stance could store up trouble down the road should the financial threats materialize.

Such talk has since faded. “There doesn’t seem to be the same idea of having tighter monetary policy so as to lessen the risk of asset bubbles developing,” Wright said.

Perhaps that’s not surprising given the shakeout that occurred in financial markets at the end of last year and Trump’s preoccupation with the performance of stock prices.

The strong bounce-back in markets this year means that financial conditions are still accommodative, though not quite as loose as they were before the end-2018 sell-off, according to the IMF.

“There are reasons for fearing the economic consequences of very low’’ rates, former Treasury Secretary Lawrence Summers said in an April 15 presentation at the Peterson Institute for International Economics in Washington.

“These include a greater propensity to asset bubbles’’ and “incentives to substantially increase leverage,’’ the Harvard University professor said.

Eoin Treacy's view

The immortal words of Chuck Prince “as long as the music is playing, you've got to get up and dance” seem appropriate to ruminate on at this juncture. Wall Street is back testing or exceeding all-time highs, the Dollar is reasserting its uptrend against an increasingly large number of currencies and the Fed is on hold.

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