Bubble Prevention
January 6, 2009 at 10:36 pm · Filed Under The Economy
The Fed is always quick to cut rates when things turn sour, but never as quick to take action when things are rising too quickly. How about preventing bubbles and shifting policies before things get out of hand on the upside as well as the downside? Barron’s agrees:
Asset bubbles swell when risk appetites are high and credit spreads are narrow. Had the Fed considered spreads in its policies for 2004 and 2005, its tightening might have been much more aggressive. Home prices might have cracked much earlier. And today’s recession might have been much milder.
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