Bernanke Won’t Try to Affect Asset Prices

Federal Reserve Chairman Ben S. Bernanke, staking out a key policy in his first month on the job, said Friday that it was a “bad idea” for the central bank to try to influence housing and stock prices through interest rate moves.

“It’s generally a bad idea for the Fed to be the arbiter of asset prices,” Bernanke said in response to a question after a speech at Princeton University in New Jersey. “The Fed doesn’t really have any better information than other people in the market about what the correct value of asset prices is.”

Bernanke’s views on dealing with rising asset prices match those of his predecessor, Alan Greenspan, who was faulted by some economists for allowing a stock price bubble to inflate in the late 1990s and letting U.S. home prices soar in recent years.

Bernanke, 52, became chairman Feb. 1 after Greenspan’s 18 1/2 -year tenure.

“The Fed doesn’t really have good instruments for addressing asset price bubbles should they exist, particularly if they are in one particular segment or another,” Bernanke said. “I don’t think the Fed ought to intentionally try to manage asset price movements.”

The Fed does need to “pay close attention” to changes in the prices of assets because they can affect spending and economic growth, important factors in the Fed’s assessment of the economy, he said.

Timothy Geithner, president of the Federal Reserve Bank of New York, said last month that fluctuations in the prices of assets such as stocks, bonds and homes would probably play a bigger role in setting U.S. interest rate policy. Bernanke has said using interest rates to influence asset prices may damage the broader economy.

“A much better approach for the Fed in dealing with problems of financial markets is from the microeconomic point of view,” Bernanke said Friday. “For example, we pay a lot of attention to the supervising of banks to make sure that they are taking sound policy, making sound loans.”

Bernanke also said he expected the personal savings rate, which last year dropped to its lowest point since the Great Depression, to improve gradually as a slowing U.S. housing market affects consumers’ willingness to spend.

“As home prices rise more gradually than they have in recent years, people will stop seeing homes as the source of wealth creation and turn to saving,” he predicted.

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Associated Press was used in compiling this report.