Bernanke Says Fed Examining Possible Asset-Price Bubbles

Federal Reserve Chairman Ben S. Bernanke said the central bank is looking into whether asset- price bubbles may be forming in some financial markets as a result of a prolonged period of low interest rates.

The potential for bubbles is a “cost to these policies, and one that we take very seriously,” he said in Washington today in response to questions from members of the House Financial Services Committee.

The Fed chairman said the central bank is looking at the conditions behind asset markets, such as whether prices are rising in the context of higher leverage or whether these assets are owned by institutions that could jeopardize the broader economy if prices fall.

The Fed has held the benchmark lending rate near zero since December 2008, encouraging investors to seek higher yields in riskier securities. The central bank is also keeping rates low on mortgage-backed securities and longer-term Treasury debt, buying $85 billion a month of the securities in a third round of quantitative easing.

“We are examining this with a great deal of care,” Bernanke said. “Interest rates are low for a good reason.”

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.