A stock price bubble was created this fall when the Federal Reserve first cut interest rates, but central bankers had little choice but to press ahead, according to several economists.

"The Fed faced a dilemma," said Rosanne M. Cahn of Credit Suisse First Boston Corp. A failure to try to calm financial markets that were in turmoil over economic reverses in Asia and Russia would have caused pain, with no certainty that the benefits would have been worth the cost, she said.

The Fed sliced rates three times in seven weeks, from Sept. 29 through last Tuesday, sparking a rally in stocks that reversed nearly all the summer's losses. Big bank stocks did particularly well.

But Ms. Cahn said the Fed can do little about the tendency of markets toward bubbles and crashes when the basis of the problem is excess savings outside the United States, notably in Japan and Asia.

"Excess savings first cause a runup in financial asset values, or questionable loans to be made," she said. "The purpose of the subsequent crack in asset value or loan defaults is to destroy excess value and bring amounts down to levels supported by fundamentals such as return on investment."

The parallel problem of excess savings is deficient consumer spending, she noted-meaning "there are simply not enough good customers to sop up the output of global investments."

The big question is how big the bubble will get. That is hard to know, but its size can sometimes be gauged by valuations of stocks versus earnings, and bonds versus real interest rates.

"The stock market is fairly valued assuming 1999 earnings rise 18%," said Edward Yardeni, chief economist at Deutsche Bank Securities, New York. "If earnings are flat next year, as I expect, then stocks are about 20% overvalued."

Mr. Yardeni said he thinks the stock market was gripped by a "buying panic" after the Fed acted but added that he believes the sharp drop in stock prices from mid-July through mid-October "was a warm-up act for a deeper and more protracted bear market over the next two years."

Another economist said stocks are also overvalued now if the U.S. economy, with inflation low and falling, is facing a phenomenon in which stable prices cause stocks and interest rates to move in the same direction.

"For much of the last three decades, interest rates and stock prices have moved in opposite directions. However, before the 1970s, interest rates and stock prices moved in tandem," said Sung Won Sohn, chief economist at Wells Fargo & Co.

"In an inflationary era, price increases lead to more uncertainties," he said. "Risk premiums in the financial markets rise; interest rates go up, stock prices fall."

However, he said, when prices are stable, "financial markets pay attention to the price level rather than the rate of inflation."

Thus, in a noninflationary environment, prices and interest rates tend to move in the same direction as stock prices. As Mr. Sohn previously noted, that was the norm in the United States in the 1950s and 1960s-and in Japan in the 1990s.

So under this phenomenon, he said, stock prices are too high, since the wholesale price level has been falling and the inflation premium is being squeezed out, "implying narrower margins and falling corporate profits."

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