Federal Reserve Chair Janet Yellen weighed in on two headline-making financial market stories, sending a caution to investors over bitcoin while shrugging her shoulders at the value of U.S. equities.
In what’s likely to be her last press conference at the central bank, Yellen called the cryptocurrency, which has surged about 17 times in value this year, a “highly speculative asset” and “not a stable store of value.”
On U.S. stocks, which have climbed 19 percent this year, she was more relaxed. “There’s nothing flashing red there, or possibly even orange,” she said.
With the Fed only slowly taking its foot off the monetary policy accelerator amid falling unemployment, rising growth and subdued inflation, a number of Fed officials and other commentators have worried about soaring asset values. Some have called on central banks to talk down bubbles, while others, such as former Fed Governor Jeremy Stein, have pointed to a role for interest rates.
Yellen emphasized the central bank continued to monitor stability risks, but said there has not been any build up of leverage or credit growth that would cause a drop in prices to reverberate through the wider economy.
“We have in recent months characterized the general level of asset valuations as elevated,” Yellen said, adding, “the fact that those valuations are high doesn’t mean that they are necessarily overvalued.”
Bitcoin Prospects
Yellen was equally unconcerned over how a crash in the price of bitcoin might affect wider markets or institutions, largely because big banks didn’t appear to be exposed significantly to its value. Trading of bitcoins took to the mainstream this week as futures began trading on a regulated exchange -- the Cboe Global Markets Inc. -- and its CME Group Inc. rival plans to follow suit.
“Undoubtedly there are individuals who could lose a lot of money if bitcoin were to fall in price, but I really don’t see that as creating a full blow financial stability risk,” she said.
“I really don’t see any significant exposure of our core financial institutions to threats from bitcoin if its value were to fluctuate.”
That didn’t prevent her from throwing cold water on bitcoin as an investment, saying it “doesn’t constitute legal tender.”
New York Fed President William Dudley said last month he would be “pretty skeptical” of bitcoin, adding that it’s “not a stable store of value.” Reserve Bank of Australia Governor Philip Lowe said this month that the fascination with cryptocurrencies “feels more like speculative mania than it has to do with their use” as a form of payment.
Digital Merits
Responding to a separate question on bitcoin, Yellen drew a distinction between currencies like bitcoin, which bear no government’s imprimatur, and the potential emergence of sovereign digital currencies.
“There is a discussion going on among central bankers about the potential merits of a central bank itself adopting a digital currency, and there may even be a central banker or two around the globe that might go in that direction,” she said. Such a step isn’t under consideration at the Fed, she said.
“I would really doubt that the Federal Reserve will soon go in that direction,” she said.
Yellen’s comments followed a meeting of the Federal Open Market Committee where officials raised their benchmark interest rate by a quarter percentage point to a range of 1.25 percent to 1.5 percent.
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