St. Louis Federal Reserve Chairman James Bullard said on Tuesday that he does not see an asset price bubble and doubts the central bank needs to start tightening policy anytime soon.
With rising prices in the stock market and in alternative assets like bitcoin, Fed officials have faced repeated questions about whether low rates and trillions in bond purchases have helped to create dangerously high valuations.
But Bullard told CNBC that there are no clear signs of excesses, although he admitted that the shares are “highly valued in general”.
“The most important thing about stocks is really these tech companies and how high you are going to rate these guys,” he said in the “Squawk Box”. “They have great technology, great revenue, business models [where] the sky is the limit. So, where investors want to evaluate this, this is driving a large share of the market.
“I’m not sure if you want to call that part a bubble,” he added. “This is a normal investment, trying to understand what these companies are really worth.”
In its response to the Covid-19 pandemic, the Fed has lowered its benchmark short-term lending rate to almost zero and is buying at least $ 120 billion in bonds a month in an effort to keep liquidity flowing into the economy.
With growth apparently back on a solid footing and worries rising over inflation, markets are concerned that the Fed may start to retreat in its highly accommodating stocks.
But Bullard said that day is not imminent, although the Fed is “monitoring very closely to see if it gets out of hand”.
He noted that the signs point to a strong economic recovery this year.
“Let’s be clear. Wall Street believes that the United States economy can grow faster than China this year,” with a “rising US economy, fueled by fiscal stimulus and monetary policy.”
But asked if he thinks the Fed should start slowing its asset purchases, Bullard said: “Not really. I think we’re in good shape today. Why don’t we wait and see if the scenario I just described really unfolds. “
Bullard added that he is not concerned about the increase in the price of bitcoin – after $ 50,000 on Tuesday morning – and said it is unlikely to have an impact on Fed policy.