Fed's Monetary Policy and Asset Bubbles

Fed's accommodative monetary policy stance and asset bubbles
https://www.bloomberg.com/news/articles/2019-04-23/fed-seems-resigned-to-bubble-risk-in-effort-to-extend-expansion

U.S. Stocks Are Back on Course After a Seven Month Detour

https://www.bloomberg.com/news/articles/2019-04-23/abyss-averted-in-stocks-as-valuations-and-rates-restore-bull-run

University of Oregon economist Tim Duy notes:

https://www.bloomberg.com/opinion/articles/2019-02-04/the-fed-put-applies-to-both-the-economy-and-markets

“The stock market isn’t the economy, but it is sufficiently connected with the economy that it can’t be ignored by the Federal Reserve. Eventually, central bankers must respond to protracted turmoil in financial markets. That means it will be very difficult - if not impossible - to differentiate between a “Fed put” on the economy versus on the stock market.”

Meanwhile, Yale economist Stephen Roach notes:

https://www.project-syndicate.org/commentary/federal-reserve-right-to-raise-interest-rates-by-stephen-s--roach-2018-12

“Notwithstanding howls of protest from market participants and rumored unconstitutional threats from an unhinged US president, the Fed should be congratulated for its steadfast commitment to policy “normalization.” It is finally confronting the beast that former Fed Chairman Alan Greenspan unleashed over 30 years ago: the “Greenspan put” that provided asymmetric support to financial markets by easing policy aggressively during periods of market distress while condoning froth during upswings.”

Related:

MORAL HAZARD AND THE US STOCK MARKET: ANALYSING THE 'GREENSPAN PUT' by Marcus Miller, Paul Weller and Lei Zhang

The Economic Journal, Vol. 112, No. 478, Conference Papers (March, 2002)

https://www.jstor.org/stable/pdf/798366.pdf

Abstract:

When the risk premium in the US stock market fell substantially, Shiller (2000) attributed this to a bubble driven by psychological factors. An alternative explanation is that the observed risk premium may be reduced by one-sided intervention policy on the part of the Federal Reserve which leads investors into the erroneous belief that they are insured against downside risk. By allowing for partial credibility and state dependent risk aversion, we show that this 'insurance' - referred to as the Greenspan put - is consistent with the observation that implied volatility rises as the market falls. Our bubble is not so much 'irrational exuberance' as exaggerated faith in the stabilising power of Mr. Greenspan.

You Might Own Risky Debt and Not Know It

https://www.forbes.com/sites/greatspeculations/2019/03/27/you-might-own-risky-debt-and-not-know-it/