One key investor takeaway from Federal Reserve Chair Jerome Powell's press conference on Wednesday: This central bank is not going to break a sweat fretting about future asset bubbles.
NEW YORK - One key investor takeaway from Federal Reserve Chair Jerome Powell’s press conference on Wednesday: This central bank is not going to break a sweat fretting about future asset bubbles.
Still, Powell said the decade-long U.S. economic expansion, which ran prior to the pandemic hitting growth, had included both quantitative easing and low interest rates but was “notable for the lack of the emergence of some sort of a financial bubble.” The central bank’s balance sheet has remained steady at around $7 trillion since May as it has reduced some purchases of corporate bonds as spreads have tightened. Its balance sheet stood at approximately $4.29 trillion in the first week of March.
The U.S. benchmark S&P 500 is up approximately 51% since its lows in March, bolstered in part by the U.S. central bank’s $3 trillion stimulus plan and move to slash interest rates to essentially zero. The index now trades at a trailing price to earnings ratio of 27.2, nearly double its historical average of 16, according to Refinitiv data.
Andrew Brenner, head of international fixed income at NatAlliance said the Fed was “nowhere near as dovish as many had thought” with no extension of asset purchases, no increase in buying of longer-end bonds and no yield curve capping, which alongside a view that the Fed will let inflation run, pushed up longer-end yields and hurt equities, he said.
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