PiCK

Powell "Stocks are fairly overvalued…rates modestly restrictive"

Source

Korea Economic Daily

Summary

Jerome Powell, chair of the U.S. central bank (Fed), said stocks and other risky assets are fairly overvalued.
He said the current interest rate level is "modestly restrictive" and indicated there may be room for additional rate cuts this year.
Powell assessed that financial stability risk is not high and said markets have already priced in expectations about Fed policy.

At an event in Rhode Island on the 23rd

However, "financial stability risk is not high"

Current interest rate level is "modestly restrictive"

Leaves room for additional cuts

Jerome Powell, chair of the U.S. central bank (Federal Reserve), said on the 23rd (local time) that asset prices, including stocks and other risky assets, have reached high levels.

At the event in Providence, Rhode Island, during his speech, Powell responded this way when asked how much he weighs the price levels of financial markets and whether he is exercising greater patience toward high valuations.

Powell said, "We look at overall financial conditions and ask ourselves whether our policies are affecting financial conditions in the way we aim. But yes. By many measures, for example, stock prices are fairly overvalued."

As expectations grew that the Federal Open Market Committee (FOMC) would cut the policy rate at the recent meeting, stock and other asset prices rose sharply. In fact, even after the FOMC cut the policy rate by 0.25% percentage points on the 18th, major stock indexes continued to hit record highs.

Powell said, "Markets listen to our remarks and follow, and they estimate where future interest rates will go. So the market prices in those expectations." However, while acknowledging that stock levels are high, Powell emphasized, "This is not a time of elevated financial stability risk."

Meanwhile, Powell said he judges the Fed's rate stance to be "still modestly restrictive" even after last week's rate cut. This suggests there could be room for additional rate cuts this year if the recent labor market slowdown continues to be seen as larger than inflation-related setbacks.

He also stressed the difficulty of achieving the Fed's dual mandate of keeping inflation low and stable while promoting a healthy labor market. Powell said, "'Two-sided risks' means there is no path without any risks." He added that if rates are cut too much or too quickly, inflation could remain closer to 3% than the Fed's 2% target, and conversely, if restrictive policy is maintained for too long it could unnecessarily weaken the labor market.

New York=Park Shin-young, correspondent nyusos@hankyung.com