Federal Reserve Chairman Ben Bernanke said Tuesday that the Fed may need to use monetary policy tools to prevent asset bubbles from forming reports CNBC.Bernanke was quick to explain that while other methods are preferable, “The possibility that monetary policy could be used directly to support financial stability goals, at least on the margin, should not be ruled out.”
Bernanke’s Vision for Central Banks
Bernanke continued by advocating that central banks need to have the obligation of controlling inflation while supporting the nation’s banking system. For example, in the current economy, the Fed pushed long term interest rates lower by lowering short-term rates and expanded its portfolio of Treasury and mortgage-backed securities. Bernanke also said “The evolving consensus … is that monetary policy is too blunt a tool to be routinely used to address possible financial imbalances,” instead calling regulation, supervision and monitoring “the first line of defense” according to Reuters.
The Fed’s Actions and Investor Feedback
While the Fed has been criticized for keeping interest too low for too long, an issue that could fuel inflation, esteemed investors like Omega Advisors fund manager Leon Cooperman say that “The recent facts suggest the economy is accelerating moderately.” Moreover, just a couple weeks ago, Bernanke announced the Fed would take additional steps to help bolster the US economy but stayed away from quantitative easing. People like Marc Faber are agreeing that further steps are necessary, both now and in the future, but advocate that the best way to fix the system and keep it stable is to reduce subsidies and charge more taxes across the board.