Fed Chief Ben Bernanke recently stated that the Fed might raise rates to cut off future financial asset bubbles, but mounted a defense against critics who claim that the Fed’s failure to do so led to the most recent financial asset bubble.
I think this belies the dichotomy present in the mandate put to the Fed by Congress. Per the Humphrey-Hawkins Full Employment Act, the Fed is to pursue actions which promote….full employment, with low inflation and economic growth.
That seems like a recipe for financial asset bubbles.
While the Congress debates auditing the Federal Reserve, perhaps it should reconsider the mandate it has placed on the Fed.