Ben Bernanke and Housing Markets

All indications are that Ben Bernanke will be the next chairman of the Federal Reserve, starting February 1, 2006. He is unlikely to stray far from the policies developed during the Greenspan years, which may be why his nomination was well received by analysts and markets alike, as the Economist notes.

So where does Bernanke see American housing markets going, and what does he consider the Fed's responsibility to be toward asset prices and the welfare of the overall economy?

The Washington Post reports that "Bernanke does not think the national housing boom is a bubble that is about to burst," although he makes no similar statement about local markets. He has also made clear his view that the Fed's role is not to identify and correct potential asset price bubbles. From the Post:

...he has argued for many years that the Fed should respond to rising or falling prices for stocks, real estate or other assets only if they are affecting inflation or economic growth in an undesirable way. Thus, he would advocate cutting interest rates if a reversal in the housing market sharply dampened consumer spending, triggering job losses or a fall in inflation to very low levels.

For a more detailed account of Bernanke's philosophy, see his remarks on asset-price bubbles and monetary policy, where he talks about the difficulty of identifying bubbles, as well as the dangers of corrective options such as "leaning on bubbles" or aggressively popping them.