St. Louis Federal Reserve president James Bullard said Tuesday that he doesn’t see a bubble in asset prices and doubts the central bank needs to start tightening policy anytime soon.
With prices surging in the stock market and in alternative assets like bitcoin, Fed officials have faced repeated questions about whether low rates and trillions in bond buying have helped create dangerously high valuations.
But Bullard told CNBC that there aren’t clear signs of excesses though he conceded that stocks are “highly valued on the whole.”
“The biggest thing in equities is really these tech firms and how high are you going to value these guys,” he said on “Squawk Box.” “They’ve got great technology, they’ve got great revenues, business models [where] the sky is the limit. So, where investors want to value those is really driving a big chunk of the market.”
“I’m not really sure you want to call that part a bubble,” he added. “That’s just normal investing, trying to get your head around what those companies are really worth.”
In its response to the Covid-19 pandemic, the Fed has slashed its benchmark short-term borrowing rate to near zero and is buying at least $120 billion of bonds each month in an effort to keep liquidity flowing into the economy.
With growth seemingly back on solid footing and concerns rising over inflation, markets have worried over when the Fed might start pulling back on its highly accommodative actions.
But Bullard said that day isn’t imminent even though the Fed is “monitoring very closely to see if this does get out of control.”
He noted that signs are pointing to a strong economic rebound this year.
“Let’s be clear. Wall Street thinks the U.S. economy might grow faster than China this year” with a “roaring U.S. economy fueled by fiscal stimulus and monetary policy.”
But asked if he thinks the Fed should start tapering the pace of its asset purchases, Bullard said, “Not really. I think we’re in good shape for today. Why don’t we just wait and see if the scenario I just described actually plays out.”
Bullard added that he’s not concerned about the surge in bitcoin pricing – past $50,000 Tuesday morning – and said it is unlikely to impact Fed policy.