It Is Possible To See Bubbles: Ex-Fed Economist

Earlier in the month I had this post regarding the Princeton conference that included Fed Governor Edward Gramlich. A transcript hasn't shown up on the web but thanks to a reader we have this PrudentBear link, which included this Bloomberg link.

It seems there was one panelist that disagreed with the notion that the Fed cannot, nor should act on asset bubbles. Economist Stephen G. Cecchetti said "it is possible to identify bubbles and their existence distorts economic decisions. For instance, consumers may have a 'false impression of wealth' and as a result 'accumulate unsustainable debt.'"

He goes on to suggest a certain lazyness on the part of the central bank. "Cecchetti agreed that identifying bubbles is difficult, but he asked, 'Is it more difficult than what policy makers already do?' Among other things, central bank forecasts of inflation and real economic growth already require forecasts of property prices, he noted."