Watching for bubbles like a hawk
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The NYTâ€™s Binyamin Appelbaum writes that Stein â€śhelped to provide an intellectual rationale for the cautious evolution of the Fedâ€™s stimulus campaignâ€ť; he has also spoken with precision on ending the problem of too-big-fail banks and argued that how crowdfunding could be directed towards community investment.
Despite below-target inflation and and high unemployment, Stein has focused on worries that quantitative easing will promote excessive risk-taking, potentially causing bubbles, and leading to another financial crisis.
In an influential and controversial speech last year, Stein said that beyond the Fedâ€™s traditional dual mandates of stable prices and maximum employment, the central bank should also preemptively fight bubbles with monetary policy. â€śWaiting for decisive proof of market overheating may amount to an implicit policy of inactionâ€ť, he warned. Generally, the Fed has a pretty poor track record in spotting, let alone stopping, bubbles.
Steinâ€™s approach drew a rebuke from Mark Thoma, who wrote that â€śif monetary policymakers begin getting skittish, then the unemployed will lose the one institution that seemed to actually care about their strugglesâ€ť. Scott Sumner thinks Stein is ignoring a lesson of the the 1920s. Sumner would prefer that the Fed use its regulatory power to can discourage excessive risk-taking.
Ryan Avent has been a persistent critic of what he says is Steinâ€™s focus on arguably frothy markets ahead of growth and employment. Last week Avent wrote that â€śif you want to know why the Federal Reserve is undershooting both its inflation target and its maximum employment mandate, cast your eye toward Jeremy Steinâ€ť. Steinâ€™s most recent speech, Avent says, effectively takes â€śownership of the Fed’s move toward tapering. Long-term unemployed Americans should address their letters accordinglyâ€ť. Matt Yglesias tweeted even more bluntly: â€śJeremy Stein is why you canâ€™t get a jobâ€ť. â€“ Ben Walsh
On to todayâ€™s links: