WASHINGTON, May 30 – If the housing market has become a bubble, as increasing numbers of economists warn, would the Federal Reserve try to deflate it?
The idea runs counter to a deep-seated view at the central bank, which refused to puncture the stock market bubble of the 1990’s and continues to view its main job as preventing inflation rather than influencing the prices of stocks, bonds or real estate.
"We recognized that, despite our suspicions, it was very difficult to definitively identify a bubble until after the fact," said Alan Greenspan, the Fed chairman, in a speech two years ago. The idea that the collapse of a bubble can be softened by pricking it in advance "is almost surely an illusion," he said.
But many economists say the housing market poses a different challenge from the stock market. For one thing, they say, the Federal Reserve’s policies have played a much more direct role in the housing boom than they did in the technology-fueled stock bubble.