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There is always a debate as to the role of the Fed when it comes to asset "bubbles." For instance, the Fed was criticized by many after the internet bubble. What is the correct role? Hands off? Active interventionist?
Fed Governor Edward Gramlich gave his view to a "conference hosted at Princeton University." His view? Basically hands off:
"You've only got one funds' rate so you can't get into the business of targeting specific assets."
"Gramlich stressed that the Fed had a very specific task -- it is mandated by Congress to preserve price stability while seeking sustainable full employment -- and demanding that it tackle asset bubbles as well could undermine those goals. "If you worry about asset prices, that represents a trade-off with your primary objectives.""
That is true, but the counter argument can also be made. Namely that the role of the Fed is to assure stability in the Economy and that asset bubbles are often destabilizing. So the debate will continue to be waged.