Federal Reserve officials at their March meeting stressed the need to make sure record-low interest rates don't feed new speculative bubbles in stocks or other assets. ...I do worry, however, that many people at the Fed still incorrectly believe that bubbles are impossible to detect until after they burst.
To aid the recovery, the Fed held the target range for its bank lending rate at zero to 0.25 percent. It's stood at that level since December 2008. And it maintained a pledge — in place for a year — to keep rates at rock-bottom levels. ...
Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, for a second straight meeting was the sole member to oppose keeping that pledge. Analysts saw Hoenig as concerned that holding rates too low for too long could feed some new speculative bubble in assets such as stocks or commodities.
Fed members noted the importance of closely monitoring financial markets and institutions to help detect risks at an early stage. They cited, in particular, the need to monitor asset prices and loan levels.
Information collected by Fed staff hasn't revealed significant threats in the financial markets or widespread high-risk-taking, the minutes concluded. Still, Fed officials said they would be on the watch for any such threats.
The Fed, though, has been attacked on Capitol Hill and elsewhere for failing to detect risks leading up to the financial crisis. ...
Some also blame for the Fed for feeding the housing bubble that eventually burst and plunged the country into the worst recession since the 1930s. Critics contend the Fed did so by holding rates too low for too long after the 2001 recession.
Update: More news suggesting the Fed may be gradually changing its stance on asset bubbles.