Tom Keene Talks to Yale's Stephen Roach

Tom talks with Yale’s Stephen Roach about asset bubbles, stimulus, and low, low interest rates

Janet Yellen, the No. 2 at the Fed, says that even if the Fed meets its employment target, loose monetary policy is not going away any time soon. Is that a good idea?
Zero-interest rates were put in place during the crisis as an emergency measure. The crisis is over.
Are we in an asset bubble drivenby negative real rates?
We’ve got a huge amount of excess liquidity being pumped into the financial system by major central banks all over the world in a period when real economic activity is very subdued. The liquidity is going somewhere. Jeremy Stein, new governor of the Fed, has already sounded the alarm that it may be creating dangerous conditions in credit markets. I think that’s a warning to be taken very seriously.
But Yellen and others say it could be dangerous to tighten.
I think the burden of proof is on our central bankers to demonstrate the transmission effect between their balance sheet expansion and the labor market. This is a veil of mystery they have not really removed.
Are you confident that the New York Fed understands the shocks that will occur when we unwind the Fed’s balance sheet and go to real rates?
They assure us that they know how to unwind. What they have not assured us is, do they have the political will to do that if there are some negative reverberations on the real economy?

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