Are stocks overheating? Ben Bernanke frankly says he’s not sure.
Despite a 64 percent jump in the S&P 500 Index from its March low, the Fed chairman said in a speech Monday that it is not clear that stocks have become overvalued.
“It is inherently extraordinarily difficult to know whether an asset’s price is in line with its fundamental value,” he said in response to questions after the New York speech Monday.
“It’s not obvious to me in any case that there’s any large misalignments currently in the U.S. financial system.”
Nor is it clear what responsibility the Fed might have to rein in asset prices abroad, Bernanke added.
Chinese leaders meeting with President Barack Obama this week have openly criticized low U.S. rates they say is feeding a growing bubble across Asia.
Cheap dollars, they say, have led to a “carry trade” in which investors borrow greenbacks and invest elsewhere, pumping up prices on nearly everything, from Hong Kong apartments to gold bullion to foreign stocks.
Bernanke’s prescription: Regulate your own markets. He and the rest of the Fed members have repeatedly warned that the U.S. central bank is on a very long course of low rates in a drive to stave off deflation here.
“The best approach here if at all possible is to use supervisory and regulatory methods to restrain undue risk-taking and to make sure the system is resilient in case an asset-price bubble bursts in the future,” Bernanke said.
Asked if rates in the United States might rise if a bubble psychology does develop, Bernanke would not rule it out.
“We can never say never,” Bernanke said. “We have to keep an open mind.”
The huge and growing U.S. government debt causes rates to rise in any case, warned Dallas Federal Reserve Bank President Richard Fisher on Monday.
"Rates are lower than I would have expected them to be,'' Fisher said. "We'll see how long that continues.''
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