May 16 (Bloomberg) -- Central bankers should strengthen regulation to avert a credit-fueled increase in asset prices and forgo raising interest rates in an attempt to reverse a future price surge, Federal Reserve Governor Frederic Mishkin said.
``It falls to regulatory policies and supervisory practices to help strengthen the financial system and reduce its vulnerability to both booms and busts in asset prices,'' Mishkin said yesterday in remarks at the Wharton School at the University of Pennsylvania in Philadelphia.
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U.S. central bankers, when faced with asset price bubbles in technology stocks and housing during the past decade, chose not to intervene with the federal fund rate.
Internet StocksAs investors began pushing Internet stocks higher in 1996, the Fed held the benchmark lending rate at 5.25 percent and raised it only once, by a quarter point, the following year.
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The Fed's hands-off approach to soaring asset prices is ``a dangerous, reckless and irresponsible way to run the world's largest economy,'' Stephen Roach, chairman of Morgan Stanley Asia, said at the World Economic Forum in Davos in January.
Greenspan, Fed chairman from 1987 until January 2006, has defended the monetary policy that coincided with the surge in technology stocks and home prices, saying an increase in borrowing costs would harm employment and growth.
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