By In the aftermath of the 2008 financial crisis, economists debated whether the Federal Reserve should be involved — at all — in pricking bubbles. The housing bubble, and subsequent financial crisis, had led to a disastrous result: Hundreds of banks had failed and millions of Americans had lost their jobs. At the time, many still believed the emergence of future bubbles could only be prevented through financial regulation, and not through interest rate hikes.
Today, however, as interest rates remain at historically low levels and are expected to stay low at least into next year, there is growing concern among investors, economists and central bankers that a new bubble has emerged, and that increased regulation isn’t enough to stop it. Led by a powerful Fed governor, there’s a growing call for the Federal Reserve to raise interest rates to prevent this bubble from growing.
So what bubble are we talking about? It’s not the one you might expect.
Most of us worry about bubbles in housing and stocks because that’s what we own. But those markets are not really what worries the Fed the most. Central bankers are more concerned about the far bigger, but less sexy, bond market. That’s because a bubble exploding in this market could lead to another devastating financial crisis.
Keep reading The Potential Bubble the Federal Reserve Cares Most About | FiveThirtyEight.
