Yahoo Finance Powell: Financial system not threatened by 'frothy' asset valuations
The retail-driven run-up in Gamestop and the memeification of cryptocurrency Dogecoin are not of concern to the nation’s central bank, its chief said Wednesday.
Federal Reserve Chairman Jerome Powell told reporters some asset valuations appear “frothy,” but did not see any risks that may hurt the financial system.
“The overall financial stability picture is mixed, but on balance it’s manageable,” Powell said Wednesday in response to a question from Yahoo Finance.
Powell added that the broad run-up in market prices may be linked in part to the central bank’s easy money policies, but said optimism over getting to a post-pandemic world is the main driver.
“It has a tremendous amount to do with vaccination and re-opening of the economy — that's really what has been moving markets a lot in the last few months,” Powell said.
Asked about the meme stock phenomenon in late-January, Powell similarly declined to speak to specific markets but said that asset values were broadly being driven by rising economic optimism.
Year-to-date, the S&P 500 and the Dow Jones Industrial Average have gained more than 10% each, repeatedly breaking through new all-time highs.
Other risks
Powell’s remarks make it clear that the central bank feels comfortable running with its aggressively accommodative monetary policy. In addition to near-zero short-term interest rates, the Fed has also been absorbing $120 billion a month in U.S. Treasuries and agency mortgage-backed securities.
The policy-setting Federal Open Market Committee on Wednesday kept both of those policy measures unchanged. Powell told reporters in the afternoon that the Fed remains a “long way” from raising rates.
Powell said the central bank is still keeping an eye on some financial stability risks, adding that rising home prices are catching some attention.
The S&P CoreLogic Case-Shiller national home price index reached a 15-year high in February, according to data released Tuesday.
Powell said the higher prices are due to constraints on supply, with homebuilders unable to keep up with demand. He added that he does not see financial stability concerns in those prices, despite their history with triggering previous crises in the U.S.
“We really don’t see that here,” Powell said Wednesday. “We don’t see bad loans and unsustainable prices and that kind of thing.”
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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