After deciding against a rate hike this month, the Fed turns its eye toward stock valuations and doesn’t like what it sees—stock prices are making markets vulnerable, it says.
“Although equity valuations do not appear to be rich relative to Treasury yields, equity prices are vulnerable to rises in term premiums to more normal levels, especially if a reversion was not motivated by positive news about economic growth,” the Fed wrote in its recent monetary policy report submitted to Congress, MarketWatch reports.
Not everyone cares about the Fed’s take on stocks, especially since Wall Street usually looks to the Fed when it comes to interest rate hikes, the health of the labor market and inflation gauges.
And many analysts disagree with the idea that equities have become too pricey—a market strategist at Prudential Financial says “stocks are fully valued at these levels,” in response to the Fed’s report. [MW]
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