I get a lot of questions about why the @federalreserve doesn’t just raise rates to moderate asset prices. This note from the @sffed provides one of the most succinct analyses I have seen. The results are stunning.

“Our rough figures suggest interest rates would have needed to rise around 8% to completely avoid the boom-bust cycle. However, such a boost also could have caused significant damage to the Fed’s main objectives of full employment and price stability.”
https://www.frbsf.org/economic-research/publications/economic-letter/2015/august/interest-rates-and-house-prices-central-bank-goals/

Study looks at US and international trends and shows that a 8% in rates in 2002 would have eliminated the housing bubble. It also would have triggered a pullback in economic activity that was worse than 08-09 recession, which was triggered by the bursting of subprime bubble.

Moral of the Story: That is why the Fed and other central banks are reluctant to try to “lean against the wind” on asset price bubbles. Those types of policies are on their own costly and can only really be done in hindsight.

The US was still “mopping up” after the bursting of the http://dot.com  bubble in 2002. We were suffering our second “jobless” recovery, which is a term that resembles “stainless;” it doesn’t mean no jobs, just fewer than was usual given losses endured.