Federal Reserve Chair Jerome Powell acknowledged on Tuesday that asset prices, including stocks, are at elevated levels, but he downplayed concerns about any immediate threat to financial stability.
Speaking in Providence, Rhode Island, Powell was asked how the central bank weighs market prices in its policy decisions. “We do look at overall financial conditions, and we ask ourselves whether our policies are affecting financial conditions in a way that is what we’re trying to achieve,” he responded. “But you’re right, by many measures, for example, equity prices are fairly highly valued.”
Despite noting the high valuations, Powell stated this is “not a time of elevated financial stability risks.”
His remarks follow a significant market rally. Stocks have reached a series of record highs, a surge that began in anticipation of and continued after the Federal Open Market Committee’s decision last week to cut its benchmark interest rate by a quarter percentage point.
Powell explained that this market behavior is expected as investors attempt to anticipate the central bank’s moves. “Markets listen to us and follow and they make an estimation of where they think rates are going. And so they’ll price things in,” he said.
Following Powell’s comments on high valuations, stock markets retreated, with major indices turning negative for the day.
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