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.”