I just got back from London, where I ran into a senior British official I hadn’t seen in some time. I asked him what was going on. “Another housing bubble,” he said, only half-jokingly. After being depressed for a few years, house prices in the English capital are rising at an annual rate of about ten per cent, and in some trendy areas the rate of increase is much higher than that. In the British media, there is already talk of the Bank of England raising interest rates sometime soon to head off another boom-bust cycle.

At least we don’t have that problem in the United States, I thought to myself. Or do we? At breakfast this morning, my wife informed me that our home, which we purchased a decade ago, in a gentrifying section of Brooklyn, has risen in value by another hundred thousand dollars. Over the past twelve months or so, prices on our once-modest street have jumped by about a third. And it’s not just brownstone Brooklyn. Listening to the radio the other day, I heard that in parts of Hoboken, across the Hudson in New Jersey, prices have jumped by forty per cent in a year.

Of course, the Brooklyn bubble—if that’s what it is—is a very localized phenomenon, and it’s partly a product of demographic shifts: sections of Brooklyn are turning into extensions of Manhattan. The further you go into the borough, though, the fewer signs you see of froth. In Bay Ridge and East New York, prices are rising at an annual rate of about five to ten per cent, according to the real-estate “heat map” on trulia.com. In Bensonhurst, Brighton Beach, and several other outlying neighborhoods, prices are falling. And for the New York metropolitan area as a whole, according to the widely watched S&P/Case-Shiller home-price indices, prices are rising at an annualized rate of less than five per cent.

Still, the fact is that real-estate inflation has returned to many parts of the country. According to the S&P/Case-Shiller index for twenty major cities, home prices rose by about thirteen per cent this year to August, which is a very rapid rate of increase, and one somewhat reminiscent of the bubble years—as the chart below shows. But, as in New York, there is wide variation. In Los Angeles, San Francisco, and Las Vegas, prices are rising at an annual rate of more than twenty per cent. In places like Boston, Charlotte, and Washington, the rate of appreciation is still below ten per cent.

Real-estate boosters like to point out that home prices are still well below their prior peaks, and that housing is more affordable than it’s been for a long time. Both of these statements are true, but they need qualifying. According to the S&P/Case-Shiller indices, prices nationwide are now back to their mid-2004 levels, and are about twenty per cent off the levels reached in 2006. (If you factor in inflation, the gap is larger.) But 2006 marked the peak of a historic bubble. If prices go charging above the records set back then, it’s not necessarily something to cheer about.

As for the affordability of housing, it’s largely due to low mortgage rates. Relative to income, home prices remain pretty high by historic standards—though not as high as during the bubble. But low rates are keeping down the cost of monthly payments, for which homebuyers have Ben Bernanke and his colleagues to thank. In purchasing, every month, eighty-five billion dollars worth of mortgage-backed bonds and long-term treasuries—a policy known as quantitative easing—the Fed is putting downward pressure on mortgage rates to goose the housing market, construction, and, by extension, the economy as a whole.

In the U.K. and Japan, other central banks are doing something very similar. Although none of them would publicly admit that they are targeting house prices (or stock prices, which are also intimately affected by changes in monetary policy), that’s what their policies amount to. And the rise in house prices on both sides of the Atlantic (and a closely connected surge in stock prices) shows that the “cheap money” policy is working.

Eventually, however, the question becomes: When does it start working too well? In Britain, some people are saying that that point has already been reached. In the United States, similar arguments will be raised if the Fed sticks with its current policies, which it looks like it will. (They already have been raised in connection with the stock market and the bond market.)

From the Fed’s perspective, it is a very tricky dilemma, because it is trying to guide the economy with just a single, monetary arm. With the political system gridlocked and the sequester in effect, the other arm of economic policymaking—fiscal policy—is out of action. The entire onus of sustaining and strengthening the recovery is falling upon the Fed, which still has a lot of work to do. Last week, the Commerce Department reported that, in the third quarter of the year, the Gross Domestic Product rose at an annualized rate of 2.8 per cent—higher than expected. But that figure is likely to be revised down, and, in any case, much of it was accounted for by companies building up inventories. Factoring in the government shutdown, the fourth quarter looks even weaker. Some Wall Street economists reckon that G.D.P. growth could come in at well below two per cent.

In such circumstances, and with the unemployment rate still above seven per cent (and the labor-force participation rate at a historic low), it’s no surprise the Fed has backed away from doing anything that might cause mortgage rates to rise, such as “tapering” its asset purchases. (Over the past six months, the mere suggestion that the Fed was considering such a move has caused mortgage rates to increase by about a percentage point. By historic standards, they are still very low, though.) Unless there’s an unexpected spurt in growth and hiring over the next couple of months, it’s very unlikely that the Fed will change course before Janet Yellen takes over from Bernanke, on February 1st. And after that? The whole world will be watching for the answer.