The US Federal Reserve is reconsidering the way it deals with asset price bubbles in the wake of the housing and credit bust, in a move that could see the central bank using extra regulation – or even interest rates – to fight unjustified increases. Financial Times
Top officials are re-examining the Alan Greenspan doctrine that central banks should not try to tackle asset bubbles and should focus on mitigating the fallout when they burst.
They are open to the possibility that the Fed might have to adopt a different approach in future, deploying either interest rates or more likely enhanced regulatory powers to put the brake on emerging bubbles. However, they have not reached any conclusions yet and could end up reaffirming their traditional handsoff stance.