Janet Yellen ended her long career at the Federal Reserve with concerns over how high the stock market has surged under her watch.
The S&P 500 has soared 315 percent since the March 2009 bear market lows and about 53 percent since she took over as chair of the central bank in 2004.
Yellen said in an interview with CBS News that market valuations are the source of some concern as she headed into private life following a 14-year Fed career, the last four as the chair. She spoke as the market finally took a breather from what has been a breathtaking move higher, with the Dow industrials falling 666 points Friday.
“Well, I don’t want to say too high. But I do want to say high,” she said. “Price/earnings ratios are near the high end of their historical ranges.”
In addition to elevated equity prices, Yellen also said commercial real estate is “quite high” compared with rents.
“Now, is that a bubble or is too high? And there it’s very hard to tell. But it is a source of some concern that asset valuations are so high,” she said.
Fed critics say the central bank purposely pushed up the stock market in an effort to create a wealth effect that officials hoped would spill over into the broader economy. The Federal Open Market Committee, the bank’s policymaking arm, took its key overnight interest rate target to near-zero in late-2008 and left it there for seven years.
In addition, the Fed expanded its bond portfolio, also called its balance sheet, from just shy of $800 billion at the end of 2007 to more than $4.5 trillion. Under Yellen, the FOMC approved five quarter-point rate hikes and began a program to shrink the balance sheet gradually.
Yellen told CBS that while she is concerned about asset valuations, a drop — she did not specify by how much — “would not unduly damage the core of our financial system.”