Is Janet Yellen suddenly signaling an imminent rise in U.S. interest rates?
At a conference in Washington Wednesday sponsored by the Institute for New Economic Thinking, in an answer to a question from co-panelist Christine Lagarde, Yellen said:
"I would highlight that equity-market valuations at this point generally are quite high. Now, they're not so high when you compare the returns on equities to the returns on safe assets like bonds, which are also very low, but there are potential dangers there."
The Federal Reserve chair also had something to say about interest rates. "We could see a sharp jump in long-term rates" after the Fed starts to normalize – i.e., raise – interest rates, she said.
Her words had the desired effect, if indeed that was her desire. Stock prices dropped around the globe, as did bond prices, driving yields sharply higher. The yield on the 10-year German government bund jumped as high as 0.78%, its highest level in more than five months and up from just 0.08% only three weeks ago. The yield on the 10-year U.S. Treasury note rose above 2.20%, its highest level in two months and up more than 35 basis points in the past month. Continue reading "Yellen's Gaffe"