Stocks moved lower Wednesday after U.S. Federal Reserve Chair Janet Yellen said equity valuations are ''generally quite high'' and warned of potential dangers. Bobbi Rebell reports.
Fed Chair Janet Yellen taking the wind out of a morning rally on Wednesday - stocks turning lower on cautious comments made in a conversation with IMF Managing Director Christine Lagarde at a conference in Washington, D.C. SOUNDBITE: JANET YELLEN, CHAIR, U.S. FEDERAL RESERVE (ENGLISH) SAYING: " I would highlight that equity market valuations, at this point, generally, are quite high. They are not so high when you compare the return on equities to returns on safe assets, like bonds, which are also very low, but there are potential dangers there." Another potential trouble spot pointed out by Yellen: long term interest rates. They could spike as the Fed normalizes policy, which could disrupt the financial system. Yellen also noted concerns about potential liquidity problems facing certain asset-managers- if they were to face a wave of redemptions. She described the risks to financial stability as "moderated, not elevated." SOUNDBITE: JANET YELLEN, CHAIR, U.S. FEDERAL RESERVE (ENGLISH) SAYING: "I say that because we are not seeing any broad-based pick-up in leverage, we're not seeing rapid credit growth, we're not seeing an increase in maturity transformation, and I would call those things kind of the hallmark of a financial bubble or the precursors of a financial crisis, but these are things we are of course focusing on very carefully." The comments reminded some of the infamous "Irrational Exuberance" comments made by former Fed Chairman Alan Greenspan: Srinivas Thiruvadanthai of the Jerome Levy Forecasting Center. SOUNDBITE: SRINIVAS THIRUVADANTHAI, DIRECTOR OF RESEARCH AND MANAGING DIRECTOR, JEROME LEVY FORECASTING CENTER (ENGLISH) SAYING: "The previous time a Fed chair said a similar thing like that about the stock market was Greenspan in 1996, and, I think, it did create a little bit of a ruckus in the markets, but five years down the road the market was double where it was. " And, in fact, Yellen also said she does not see any bubbles forming.