CNBC has a lot of good guests on this week. Here’s another clip from earlier today. This time it’s Stephen Roach talking about asymmetric monetary policy and financial bubbles. Roach believes the Fed needs to entirely rethink its policy stance which Roach describes as allowing asset bubbles to form and cleaning up after the mess. In his view, this policy was a major contributor to the financial crisis and he believes renewed signs of froth are already upon us, principally in the emerging markets. Roach believes the Fed must also take financial markets into account in addition to full employment and price stability when making policy decisions.
I certainly agree with Roach that the Fed’s asymmetric policy is dangerous. However, from a forecasting perspective, I think his view is not going to get a hearing right now. Policy makers are very concerned with the weakness in labour markets and will do everything they can with monetary policy to encourage risk taking as a sort of trickle down support for job growth.