Fed Officials Fear Financial Market ‘Imbalances’ and Possibility of ‘Sharp Reversal’ in Prices

Federal Reserve officials expressed largely optimistic views of economic growth at their most recent meeting but also started to worry that financial market prices are getting out of hand and posing a danger to the economy.

Minutes from the Oct. 31-Nov. 1 Federal Open Market Committee meeting indicate members with almost universally positive views on growth — the labor market, consumer spending and manufacturing all were showing solid gains. While there were disagreements on the pace of inflation, and even a discussion about changing the Fed’s approach to price stability, the sentiment otherwise was largely positive.

Moreover, they said the picture could get even better if Congress lowers corporate taxes as part of the reform plan making its way through the Senate . . .

Stocks have been on a tear throughout 2017, setting a series of record highs and adding trillions in value. That’s come both on the heels of stronger corporate earnings and hopes that the tax reform plan, which would take the corporate rate from 35 percent to 20 percent, becomes a reality . . .

Some members feared what would happen if the market suddenly took a hit . . .

Concerns about the surge in stocks are not new at the Fed, but most officials have downplayed the idea that the market is in a bubble. Wall Street also has been at odds about the market, with Bank of America Merrill Lynch warning of a market top coming in 2018 though Goldman Sachs has predicted another big year.
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