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Why the Federal Reserve Isn't Worried About Inflation (or Stock Bubbles)

By John Maxfield – Oct 7, 2014 at 2:06PM

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On this episode of "Where the Money Is," Motley Fool analysts Michael Douglass and John Maxfield discuss why the Federal Reserve is comfortable pushing the unemployment rate below its natural level.

The Federal Reserve signaled last month that they might be willing to push the unemployment level below its so-called natural rate -- that is, the "lowest level of unemployment at which inflation remains stable."

In doing so, they'd be taking a page out of Alan Greenspan's playbook, who oversaw a decline in the unemployment rate to 3.8% following the bursting of the technology bubble in 2000.

People outside the Fed are concerned about two things. First, many believe that Greenspan's easy monetary policy led to the housing bubble -- and they're seeing an analogous bubble forming in stocks right now. And second, by pushing the unemployment rate below the natural rate, there's fear that inflation will rear its ugly head.

In the video below, Motley Fool analysts Michael Douglass and John Maxfield discuss why the Fed itself isn't worried about these two things. {

John Maxfield has no position in any stocks mentioned; Michael Douglass owns shares of Apple. The Motley Fool recommends Bank of America and Apple. The Motley Fool owns shares of Bank of America and Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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