In these circumstances, with prices actually falling, the central bank may have little choice but to expand liquidity quite rapidly in the hope that the liquidity will arrest deflation, even if nominal short rates remain stuck in the neighborhood of zero for a range of monetary growth rates. Bubbles The issue du jour in monetary policymaking is asset price bubbles.
Should the Fed have foreseen the stock market bubble of the late 1990s and limited it in some way? I am not going to summarize the extensive debate on this issue, but I will make just one point. Our mandate tells us to stabilize employment and the prices of goods and services, not asset prices.