Fed Gov. Stein Worrying About Credit Excesses

In a speech today, Fed Governor Jeremy Stein, a voting member of the FOMC, examines “the dynamics of overheating episodes in the credit market.” He focuses mostly on the junk bond market as a useful barometer of financial excesses. Only an economist can say the following: “Thus, overheating in the junk bond market might not be a major systemic concern in and of itself, but it might indicate that similar overheating forces were at play in other parts of credit markets, out of our range of vision.” He concludes: “One of the most difficult jobs that central banks face is in dealing with episodes of credit market overheating that pose a potential threat to financial stability.”