The stock and housing markets show ‘frothiness’ but not yet in bubble territory, says Cleveland Fed President Loretta Mester

• Cleveland Fed President Loretta Mester said markets looked peppy but concerns of bubbles are premature, according to Reuters.
• The regional Fed president also projected that the central bank would raise rates in 2022.
• Inflation has remained a top concern for investors as supply disruptions and the Delta variant weigh on markets.
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Cleveland Fed President Loretta Mester on Friday said that markets looked peppy but concerns of bubbles are still premature, according to a Reuters report.

Mester said that while she was keeping an eye on “frothiness” in the housing and stock markets, it was too early to say there are bubbles forming.

“There are different things happening that will affect the forecast, but I think it’s a base case that we’re going to have growth and that the recovery is going to continue,” she told an Ohio Bankers League event.

The comment came after Fed Chair Jerome Powell downplayed risks to US real estate from China’s current turmoil.

At a press conference on Wednesday, he said that Evergrande’s debt crisis, which shook markets earlier this week, was unlikely to directly hurt the US housing market.

“The Evergrande situation seems very particular to China, which has very high debt for an emerging market economy,” he said.

Meanwhile, Mester on Friday also projected that the central bank would raise rates in 2022, two days after a Fed meeting made clear the bank would soon begin tapering its asset purchase program known as quantitative easing.

“In my view, the economy has met those conditions, and I support starting to dial back our purchases in November and concluding them over the first half of next year,” said Mester.

Inflation has remained a top concern for investors as supply disruptions and the Delta variant weigh on markets. This week, a Citi survey of its ultra-rich clients and family offices found that inflation was the number one concern of respondents, ahead of social unrest and the lingering effects of the pandemic.

Powell, whose term is up for renewal soon, has taken a slightly more hawkish tack as inflation has stayed elevated.