Fed’s Evans: To Fight Asset Bubbles 'Seems Unwise’

Since no methods exist to reliably detect asset bubbles, “it seems unwise to adopt fighting them as a policy objective,” Federal Reserve Bank of Chicago president and chief executive officer Charles L. Evans said Friday.

“Instead, it seems better to commit to what central banks are already mandated to do: preserve the safety and soundness of the financial system at all times, including when there is apparent exuberance in asset markets,” Evans said at a conference in Paris, according to prepared text of the speech released by the Fed.

The question of responding to asset price movements arose only during the current financial crisis, Evans said. He  noted that prior to the crisis, a central bank would “not react to asset price movements, except to the extent that they affect forecasts for inflation and the output gap.”

The Fed’s policy was to be prepared to “respond if and when a collapse in the prices of some assets threatened its ability to meet its policy mandates,” Evans said.

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