No Signs of Emerging Equity Bubbles Seen by Federal Reserve or Bank of England Officials

Policy makers from the Bank of England and Federal Reserve stated that they are seeing not many signs of equity price bubbles in both UK and US, thereby countering the criticisms that the record stimulus is stocking high risk taking. According to David Miles, who is a policy maker of the Bank of England, the global market is not in a territory where asset prices can be referred to as unsustainable. On the other hand, the Minneapolis Federal Reserve President, Narayana Kocherlakota stated that though they are constantly monitoring the entire situation, currently, there are no risks as such.

Incidentally, the Central Banks from the developed countries have sort of deployed an unorthodox and little tested easing in an attempt to fuel the economic growth. In last March, the Federal Open Market Committee stated that it has plans of buying $85 billion in bonds on each month unless the labor market outlook shows some sort of substantial improvement. The Committee also pledged to monitor the costs and also the benefits of an unprecedented accommodation.

On the other hand, the Chicago Federal Reserve President, Charles Evans believes that they don’t have lots of experience when it comes to the large scale asset purchases and hence, there can be associated risks as well. However, he added that a lot of factors have been weighed in and so far, he does not see a reason that can cause him great angst. Incidentally, Evans votes on the monetary policy in 2013, however, Kocherlakota does not.

In last March, not only Miles, but the Bank of England Governor Mervyn King and Paul Fisher, both voted to increase the purchases to a figure of 25 billion Pounds. However, their plan was not passed as the remaining 6 members of the Monetary Policy Committee were not in favor of the same. Inflation rate of England is over the goal of 2%, set by the Bank of England, hence, many feel that, if at this time, the stimulus is increased; there can be associated risks as well.

Incidentally, the benchmark gauge of England, the FTSE Index went ahead by 8.3% in 2013 and on last month, it actually reached to the highest level of the same since 2007. On last Friday, it, however, went down by 0.5% and currently is at 6384.39.