US Fed could use monetary policy to prevent asset bubbles "It is important for the Fed, as hard as it is, to try to detect asset bubbles when they are forming," she told the Senate Banking Committee. As a first line of defence we would have a variety of supervisory tools, of micro and macro potential, that we can try to use to attempt to limit the behaviour that is giving rise to those price misalignments. "By and large, I would say I don't see evidence at this point of asset price misalignments at a level that would threaten financial stability," she said, especially when several valuation measures were taken into account. You would not see stock prices in territory that suggest...bubble-like conditions. Ms Yellen made the remarks in an address to Senators, who have yet to confirm her nomination as Fed chairman. If they do, the 67-year old will become the first woman at the helm of the central bank. Although she dealt deftly with questions from both Republicans and Democrats, not everyone on the committee shared her view that asset bubbles have not already formed. What am I missing here? I see asset bubbles," said Mike Johanns, Republican Senator for Nebraska. He added that the Fed needs to reduce America's debt to reveal how big those asset bubbles are. Here's what I'm saying... I think the economy has gotten used to the sugar you've put out there. And I just worry you're on a sugar high," he said. Ms Yellen, who is currently deputy chairman of the Fed, also restated her belief that the central bank should keep pumping new money into the American economy until the recovery is more robust. "I consider it imperative that we do what we can to promote a very strong recovery," she said. It's important not to remove support, especially when the recovery is fragile. However, she admitted that the $85bn-a-month bond buying programme cannot go on indefinitely, even if the economy does not improve. There are "dangers" in ending the scheme either too early or too late, she said.