Should The Fed Regulate Asset Prices?
- The idea might seem crazy at first, but it follows logically from a model in which beliefs about future asset prices (‘animal spirits’) have real effects on output and employment.
- The case is reinforced when these animal spirits can feed on themselves and become self-fulfilling prophesies.
- We think a case can be made for this with the positive feedback of beliefs about the effects of the recent tax cuts.
- More ominously though, this also opens the possibility that the present sell-off will feed on itself and produce real effects on output and employment.
Source: Should The Fed Regulate Asset Prices? | Seeking Alpha
Tags: Monetary policy · The Markets