It was reassuring to hear the Federal Reserve admit today that its efforts to spur on an economic recovery by keeping interest rates law could fuel a new speculative bubble.
The zero interest rate policy “could lead to excessive risk-taking in financial markets,” according to the minutes released this afternoon of the Fed’s closed-door meeting earlier this month. Fed officials think the current likelihood of a bubbl is “relatively low,” however.
The Fed certainly doesn’t think the economy is about to come booming back. Fed policymakers said it could take “five or six years” for the economy and the labour market to be consistently healthy. But there outlook for this year is a bit brighter: they are now expecting the economy to contract just 0.5% versus the older forecast of a contraction from 0.6% to 1.6%. Of course, the meeting took place before the today’s revision of the third quarter GDP numbers.