Federal Reserve press conference, 2016-12-14 — Chair Janet Yellen

Question (Peter Barnes, Fox Business): Peter Barnes, Fox Business. Just to follow up on Marty’s question about the financial markets, the Dow is about to hit 20,000. It’s up substantially since the election on, apparently, investor optimism about potential—the impact of President-elect Trump’s policies on the economy and an improving economy. I wonder if you share that optimism, number one, and, if not, are we seeing a bout of, perhaps, irrational exuberance right now? Or are you concerned at all about a bubble in equity prices that could create some financial instability in the economy?
Answer: So, you know, I really don’t want to comment on the level of stock prices. They may have been boosted by expectations about tax policy; possible cuts in corporate tax rates that have been much discussed; or by expectations about growth, possible reductions, and downside risk to the economy. But, you know, these are things that market participants are trying to view, along with the likely path of—paths of interest rates, and I think all of that factors into movements and stock valuations. But I don’t—I don’t want to offer a view as to whether they’re appropriate.

Question (Greg Robb, MarketWatch): Thank you, Madam Chair. I guess my question to—that I had before that follow-up was, both times you’ve raised rates in this cycle, the market expectations of a rate hike have been over 50 percent. The market has, you know, kind of priced it in. Is that a prerequisite going forward? Will that have to happen as you go forward?
Answer: It’s not a prerequisite, but we do try to explain our evolving views as clearly as we can. It’s important for market participants to have a sense of how we think about the economy and the appropriate path of policy, to look at incoming data, and to form their own judgments as to whether or not changes in policy would be appropriate. And while it’s not a prerequisite, if we’re in good sync in terms of explaining what goes into our policy judgments, it’s not surprising that it would often be true that moves are well anticipated by the market. As I said, in thinking about today’s move, we’ve indicated that we thought we were making progress on our objectives. We wanted to see some more. I think anyone looking at incoming data can clearly see that we have enjoyed further progress both in the labor market and on inflation. And, therefore, there are good reasons why the market should have anticipated a moved today.