Bullard, James

St. Louis Federal Reserve Bank President James Bullard warned Tuesday that low interest rates may be feeding a new asset price bubble.

Bullard said he is open to weighing evidence that conditions are different than in the late 1990s when the stock market went through a high-tech "dot.com bubble," but said it appears to him that stock valuations, particularly in the tech-heavy Nasdaq Composite index are high.

Bullard cited a number of what he considers danger signs of a possible stock bubble and asked "do low interest rates feed this process?"

"The net wealth to disposable income ratio has returned to a high level," he observed in remarks prepared for delivery to an Emerging Venture Leaders Summit. "It has been high and volatile since the mid-1990s."

He also said the Nasdaq is "near a high in real terms" and "the price-earnings ratio is relatively high but still below the 1990s peak."

"Can the U.S. escape the boom-bust cycle this time?"

Answering his own question, Bullard said, "My view is that low interest rates tend to feed bubble processes."

Bullard, who will be a voting member of the Fed's policymaking Federal Open Market Committee next year, said "the Fed should hedge against the possibility of a third major macroeconomic bubble in the coming years by shading interest rates somewhat higher than otherwise.

"The benefit would be a longer, more stable economic expansion," he added.