In her last interview as chairman of the Federal Reserve, Janet Yellen said the all-time market highs were not a bubble.
Yellen was responding to her predecessor, Alan Greenspan, saying he's seeing bubbles in the stock market and bond market.
"So, I don’t want to label what we’re seeing a bubble — as a bubble," Yellen said in an interview on PBS.
Yellen did concede that "asset valuations generally are elevated," though.
"But I would say that asset valuations generally are elevated, and this is a characterization that we have offered up, for example, last summer in our monetary policy report. For the stock market, the ratio of price to earnings, which is a measure valuation, is near the high end of its historical range. And if we look at, for example, commercial real estate and other assets, we’re seeing high valuations."
Here's an excerpt from her interview:
WOODRUFF: Former Fed Chairman Alan Greenspan said the other day, he said he’s seeing a bubble in the stock market and he’s seeing a bubble in the bond market. Are you worried about bubbles?
JANET YELLEN: So, I don’t want to label what we’re seeing a bubble — as a bubble.
But I would say that asset valuations generally are elevated, and this is a characterization that we have offered up, for example, last summer in our monetary policy report.
For the stock market, the ratio of price to earnings, which is a measure valuation, is near the high end of its historical range. And if we look at, for example, commercial real estate and other assets, we’re seeing high valuations.
WOODRUFF: So, should ordinary Americans be worried about the markets?
YELLEN: They should be careful and I would say diversified in their investments.
I think what we look at is the likely resilience of the economy and the financial system if there were to be a correction in market valuations. And, in that regard, we have a banking system that is much stronger and better capitalized and better able to withstand a shock than prior to the financial crisis.
So, asset valuations could change. I’m certainly not predicting that that would happen, but we couldn’t rule at out. But I think the financial system would be well resilient enough to absorb the shock.