Reacting to the Stock Market

Stock market assets figure prominently, both directly and in a variety of indirect ways in the U.S. personal balance sheet. Current period of turbulence in financial markets raises important questions about the appropriate response of monetary policymakers to extreme movements in asset markets and market reactions to such response. In this essay I review recent developments in the U.S. monetary policy and financial markets and then offer a few remarks on the nature of policy-market interactions.