Yellen Cites ‘potential dangers’ in Valuations of U.S. Stocks

Federal Reserve Chair Janet Yellen on Wednesday said high equity valuations could pose potential dangers but that stability risks across the U.S. financial system remained in check.  “I would highlight that equity market valuations at this point generally are quite high,” Yellen said. “There are potential dangers there.”

Yellen’s view on the run-up in stocks was an answer to questions from International Monetary Fund Managing Director Christine Lagarde, who joined the Fed chief for the opening session of the “Finance and Society” conference here.  “We’ve also seen the compression of spreads on high-yield debt, which certainly looks like a reach for yield type of behavior,” Yellen said.

U.S. stocks were trading lower following the comments, building on earlier declines triggered by weak private job data.  Another potential trouble spot that Yellen pointed out was low long-term interest rates, which could spike as the Fed normalizes its policy, causing disruption across the financial system.