The issue is what policy setting has the capacity to sustain our remarkable economic expansion, now in its ninth year. This is the question the FOMC will be addressing at its meeting at the end of the month. One of the important issues for the FOMC as it has made such judgments in recent years has been the weight to place on asset prices.
As I have already noted, history suggests that owing to the growing optimism that may develop with extended periods of economic expansion, asset price values can climb to unsustainable levels even if product prices are relatively stable. The 1990s have witnessed one of the great bull stock markets in American history.