Soaring Stock Valuations No Big Deal to Powell Next to Bonds
- Fed chair sees high P/Es as little threat with yields low
- Valuation model shows relative risk of equities not troubling
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To defend soaring equity markets against claims of overinflation, economists often cite a valuation methodology that adjusts stock prices for interest rates. The latest to do it is Jerome Powell.
In his press conference Wednesday, the Federal Reserve chairman said that relative to risk-free rates of return, a reference to Treasury yields, shares probably aren’t as overpriced as they appear at first blush. It makes sense Powell would cite the comparison -- it’s a version of something that over the years has come to be known as the Fed model.