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Illustration: Aïda Amer/Axios

Several officials at the Fed are beginning to worry about asset bubbles and excessive risk-taking as a result of their extraordinary policy interventions, James Politi writes for the Financial Times, citing interviews with multiple Fed presidents and members of the Board of Governors.

Details: Some are now pushing for "tougher financial regulation" as concerns grow that monetary policy is "encouraging behavior detrimental to economic recovery and creating pressure for additional bailouts."

What they're saying: “I don’t know what the best policy solution is, but I know we can’t just keep doing what we’ve been doing,” Minneapolis Fed president Neel Kashkari told the FT.

  • “As soon as there’s a risk that hits, everybody flees and the Federal Reserve has to step in and bail out that market, and that’s crazy. And we need to take a hard look at that.”

Boston Fed president Eric Rosengren called for a “rethink” of “financial stability” issues in the U.S., and Fed governor Lael Brainard said in a speech last month that expectations of extended low-interest rates were boosting “imbalances” in the U.S. financial system, Politi reported.

Why it matters: Economists, strategists and fund managers on Wall Street have said for months that the Fed has effectively killed price discovery by "nationalizing" the bond market with its actions and is artificially holding up the price of financial assets.

  • That has elevated U.S. economic inequality, and while market participants have cheered, the Fed's popularity has sunk among most Americans.
  • Much of the U.S. economy, including jobs and spending at small businesses and firms not dedicated to e-commerce, continues to be weak.

The big picture: The latest comments from Brainard, Rosengren, Kashkari and others suggest that influential members of the Fed's policy-setting committee may be pushing back against the so-called Fed put — a belief among investors that if stock prices fall enough, the Fed will bail them out by lowering interest rates or by pushing trillions of dollars in liquidity into financial markets through quantitative easing.

  • That has been the underlying principle of bullish stock market strategies over the past decade, including BTFD (Buy The F*cking Dip) and TINA (There Is No Alternative), that have emboldened traders to continue buying U.S. stocks despite grim economic conditions.

But, but, but: The tough talk may simply be a call for someone else to step up as the Fed continues to backstop markets.

  • “For me, monetary policy is a very poor tool to address financial stability risks,” Kashkari told FT.
  • And Rosengren added that the central bank lacks the tools to “stop firms and households” from taking on “excessive leverage.”

Go deeper

Reddit traders look to pummel Wall Street's old guard

Illustration: Sarah Grillo/Axios

Reddit traders are taking on Wall Street pros at their own game with this basic mantra: Stocks will always go up.

Why it matters: Their trades — egged on in Reddit threads — have played a role in historic market activity in recent days.

Mike Allen, author of AM
4 hours ago - Politics & Policy

Biden adviser Cedric Richmond sees first-term progress on reparations

Illustration: "Axios on HBO"

White House senior adviser Cedric Richmond told "Axios on HBO" that it's "doable" for President Biden to make first-term progress on breaking down barriers for people of color, while Congress studies reparations for slavery.

Why it matters: Biden said on the campaign trail that he supports creation of a commission to study and develop proposals for reparations — direct payments for African-Americans.

Cyber CEO: Next war will hit regular Americans online

Any future real-world conflict between the United States and an adversary like China or Russia will have direct impacts on regular Americans because of the risk of cyber attack, Kevin Mandia, CEO of cybersecurity company FireEye, tells "Axios on HBO."

What they're saying: "The next conflict where the gloves come off in cyber, the American citizen will be dragged into it, whether they want to be or not. Period."