While the most anticipated moment in today’s Yellen presser was her response to Donald Trump that the Fed is political (which as we showed previously, she denied even as her actions confirmed his specticism), another notable moment came when she was asked if she is “worried about bubbles in the economy because of our prolonged low interest rates?”
This is her response:
Yes. Of course we are worried that bubbles will form in the economy and we routinely monitor asset valuations, while nobody can know for sure what type of valuation represents a bubble, that’s only something one can tell in hindsight, we are monitoring these measures of valuation and commercial real estate valuations are high. Rents have moved up over time, but still valuations are high, relative to rents. And so it is something we’ve discussed. We called this out in our monetary report and in other presentations and we are, in our supervision with banks, and I indicated, we have issued supervisory uidance to Mac sure underwriting is strong on these loans and this is something that we’ve looked at in stress tests, the larger banks to see what would happen to their capital positions and to make sure that they hold sufficient capital. And of course, I think the soundness and state of the banking system has improved substantially, but of course we are focused on such things.
Or, a shorter version, No, she isn.’t. And, to celebrate just that, moments later the Nasdaq hit new all time highs.
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