Bernanke Sees No 'Extreme Misvaluations' in US
Dec. 3 (Bloomberg) -- Federal Reserve Chairman Ben S.Bernanke said he sees no sign of “extreme misvaluations” ofasset prices in the U.S.
“We do not see at this point any extreme misvaluations ofassets in the United States,” Bernanke told the Senate BankingCommittee today during a hearing on his nomination to a secondterm as chairman. “It is inherently very difficult to know ifasset prices are appropriate or correctly valued.”
Fed policy makers said for the first time last month thattheir decision to cut interest rates to zero may be fuelingundue financial-market speculation, according to minutes oftheir Nov. 3-4 meeting released last week.
“Of course, all that’s contingent on your beliefs aboutwhere the economy is going to go,” Bernanke said today. “Ifthe economy were to weaken tremendously, asset prices would beovervalued.”
Bernanke was asked to respond to comments by NourielRoubini, the New York University professor who predicted theglobal financial crisis. Roubini said last month investors are“chasing commodities” and there is a risk of new asset bubblesemerging as stock markets and commodity prices surge amidrecord-low lending rates.
“Mr. Roubini is very pessimistic about the economy,”Bernanke said.
Risk-Taking
The Federal Open Market Committee said low rates mightcause “excessive risk-taking” or an “unanchoring of inflationexpectations,” according to the minutes. Central bankers alsosaid further dollar depreciation that might “put significantupward pressure on inflation would bear close watching.”
Fed officials are stepping up scrutiny of the biggest U.S.banks to ensure the lenders can withstand a reversal of soaringglobal-asset prices. Supervisors are examining whether bankssuch as JPMorgan Chase & Co. and Goldman Sachs Group Inc. haveenough capital for the risks they take, how much they know aboutthe strength of their counterparties and whether risk managershave authority to influence bank practices and policies.
Gold futures touched an all-time high yesterday as theslumping dollar spurred investor demand for an inflation hedge.The Standard & Poor’s 500 index has jumped 67 percent since its2009 low on March 9.
Some officials in Asia have suggested the Fed’s record-lowfederal funds rate -- the central bank’s interest-rate targetfor overnight loans between banks -- is pushing asset prices intheir region too high. Liu Mingkang, chairman of the ChinaBanking Regulatory Commission, warned Nov. 15 of “new, real andinsurmountable risks to the recovery of the global economy.”
Continuing the zero-rate policy may lead emerging economies“to overheat and experience financial turmoil,” Bank of JapanGovernor Masaaki Shirakawa said in Tokyo Nov. 16.
To contact the reporter on this story:Vivien Lou Chen in San Francisco at vchen1@bloomberg.net
Last Updated: December 3, 2009 12:00 ESTSource: Bloomberg
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