Equity Values Are 'Quite High' According To Fed Chief Yellen

Markets were spooked on Wednesday after Federal Reserve Chair Janet Yellen weighed in on the growing debate over whether or not US equities markets are overvalued. Speaking alongside International Monetary Fund Manager Christine Lagarde, Yellen commented that "equity market valuations at this point generally are quite high" and that "there are potential dangers there." What Does It Mean? Yellen's comments sent markets lower, but the Fed chair said the bank doesn't see any indication of a bubble forming. She said the bank was keeping a close eye on the issue, but that it wasn't setting off alarm bells just yet. Rate Hike Postponed? Some traders took Yellen's comments as another sign that the Fed would be overly cautious in raising its benchmark interest rates. With investors much more keen on risk taking in the current market, there is a possibility of an adverse reaction when the bank increases interest rates. Banking Reform In addition to her comments regarding equity valuations, Yellen also commented on the Fed's progress in reforming the financial system to ensure another financial crisis can be avoided. She remarked that one area of focus has been addressing the notion that a company can become "too big to fail", meaning that the government will step in to save a large firm to avoid a total market meltdown. She said that regulators are working together with the Fed to create a system that will allow big firms to fail without destabilizing the nation's entire financial system.