The new Fed chief played market analyst when she announced in her prepared remarks to the Senate Finance panel that she saw sectors of small- to mid-cap stocks as being overvalued.
It was quite a call for a central banker charged with maintaining full employment and keeping inflation in check.
Yellen singled out smaller firms in two distinct industries — social media and biotech — for having market valuations she called “substantially stretched.”
Investors reacted accordingly.
But in single-handedly moving two market sectors, was Yellen expressing a legitimate concern or showing her age?
My opinion: I don’t see what is so “out-of-bounds” about a Fed Chair making relevant comments about the prices of assets in any market. The Federal Reserve makes prepared statements all the time about housing prices. How is this any different?
If I were to venture a guess, the outrage from investors is coming from their like of expanding bubbles. And Yellen’s comments rained on their parade a little bit.
The article references Greenspan’s “irrational exuberance” comment in 1996 when the internet bubble was expanding as analogous to Yellen’s comments from yesterday. Seems pretty appropriate to me.
If anything, I would like to applaud Yellen for making these statements. You know as she was preparing them she thought, “Some people are gunna be pissed”. But she did it anyway because she thought it was the right thing to do. And that, to me, gives confidence that she will be an excellent chair throughout her tenure.
featured image provide by The New York Times