Yellen keeps Fed on track for rate hikes amid rich asset prices

Federal Reserve Chair Janet Yellen gave no indication her plans for monetary policy tightening had shifted while acknowledging that some asset prices had become “rich.”

“We’ve made very clear that we think it will be appropriate to the attainment of our goals to raise interest rates very gradually,” she said Tuesday in London.

In her first public remarks since the U.S. central bank raised interest rates on June 14, Yellen said that asset valuations, by some measures “look high, but there’s no certainty about that.”

“Asset valuations are somewhat rich if you use some traditional metrics like price earnings ratios, but I wouldn’t try to comment on appropriate valuations, and those ratios ought to depend on long-term interest rates,” she said.

Yellen also said she thought the central bank’s plans for reducing its $4.5 trillion balance sheet were “well understood” by financial markets.

Fed officials have been wrestling over how the central bank should react to seemingly conflicting signals about the U.S. economy from unemployment and inflation. Joblessness dropped to 4.3 percent in May, a 16-year low. Yellen and some of her colleagues have called for continued, if slow, tightening because they expect a tightening labor market will eventually trigger higher wages and overall prices.

Yet inflation has not been responding as expected to the long-term decline in unemployment. The riddle has become more pronounced in recent weeks. A widely tracked year-on-year measure of the underlying inflation trend that excludes food and energy prices slowed to 1.7 percent last month, marking the fourth straight month of declines, according to data released by the U.S. Labor Department.

Source: Bloomberg Pro Terminal

Jr Trader Alexander Kumanov

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