I would, however, hesitate to endorse the opinion that the Fed should have had, a few years ago, a baseline scenario that incorporated a possible bursting of the housing bubble and disruptions in financial markets, and that it should have conducted monetary policy based on the scenario.
From the perspective of policymakers, a convincing approach would be one where the possibility of the bursting of a bubble is regarded as a risk factor for the conduct of monetary policy – rather than one where it is incorporated in the baseline scenario.