Policy makers from the Federal Reserve and the Bank of England said they see few signs of equity price bubbles in the U.S. and the U.K., countering criticisms record stimulus is stoking excessive risk-taking.
“I don’t think we’re in that kind of territory that obviously makes these asset prices unsustainable and at a bubble level,” Bank of England policy maker David Miles said today during a panel discussion at the Boston Fed. While “this is something we have to keep monitoring” at the Fed, “I don’t see” these risks now, Minneapolis Fed President Narayana Kocherlakota said to reporters after speaking at the same forum.
Central banks from across developed economies have deployed unorthodox and little-tested easing to fuel economic growth. The Federal Open Market Committee in March reiterated its plan to buy $85 billion in bonds every month until the labor market outlook improves “substantially,” while pledging to monitor the costs and benefits of unprecedented accommodation.
“We don’t have a lot of experience” with large-scale asset purchases and “they can entail risks,” Chicago Fed President Charles Evans said during the panel discussion at the Boston Fed. “We’ve looked at a lot of things and there’s nothing in that horizon that causes me great angst.”
Evans votes on monetary policy this year; Kocherlakota does not.
Since cutting the benchmark interest rate to near zero in December 2008, the U.S. central bank has tried to fuel growth by expanding its balance sheet to $3.23 trillion and providing more guidance on its policy aims.
Several Fed officials said the central bank should begin slowing the pace of its asset purchases later this year and halt it entirely by year end, according to minutes of the March 19-20 FOMC meeting released this week.
The Standard & Poor’s 500 Index fell 0.3 percent yesterday to 1,588.85, retreating from a record high the previous day, as government data showed retail sales unexpectedly fell in March, commodities plunged and a gauge of consumer sentiment slipped. The S&P 500 has gained 11.4 percent this year.
Kansas City Fed President Esther George said this month record stimulus for more than four years may create financial instability that could hurt employment over time.
“We should not underestimate the risk of an extended period of zero interest rates and the accompanying incentives that may lead to future financial imbalances,” George said on April 4 in El Reno, Oklahoma. “Such imbalances could unwind in a disruptive manner and cause the labor market recovery to stumble.”
George’s comments reflected her dissents this year in her first votes as a FOMC member.
The BOE’s Miles, along with Paul Fisher and Governor Mervyn King, voted to increase bond purchases by 25 billion pounds ($38 billion) in March, though were defeated by the remaining six members of the Monetary Policy Committee, who voted for no change. The MPC majority said there was a risk of adding to stimulus at a time when the inflation rate remains above the BOE’s 2 percent goal.
The MPC also kept its bond-purchase target unchanged this month, at 375 billion pounds ($576 billion). The minutes of that meeting will be published on April l7, a day after March inflation data. Consumer-price growth accelerated to 2.8 percent in February.
The U.K.’s FTSE 100 Index has increased 8.3 percent this year, and last month reached its highest level since 2007. The index yesterday fell 0.5 percent to 6,384.39.
Lars E.O. Svensson, deputy governor at Sweden’s Riksbank, said the purpose of unconventional policy tools is to lower yields, bolster asset prices and encourage more risk-taking. Svensson has argued for deeper rate cuts than his fellow members of the Riksbank’s executive board, in order to lower unemployment in the Nordic region’s largest economy.
“There’s probably too much risk-aversion and too little risk-taking,” he said today at the Boston Fed forum.
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