Federal Reserve Chair Janet Yellen's Senate testimony was overshadowed by a Fed report warning of stretched valuations in sectors like small cap social media and biotech. Bobbi Rebell reports.
Fed Chair Janet Yellen may have been testifying to Congress on the economy, but it was her written report, saying the Fed is concerned about "substantially stretched valuations" in some sectors that hit the stock markets. Specifically the Fed report said "Equity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched." REPORTER BRIDGE: BOBBI REBELL, REUTERS CORRESPONDENT, (ENGLISH) SAYING: That weighed on social media stocks that trade here at the nasdaq- where Facebook and Yelp were among the biggest losers. This was the first time in 14 years that the Fed has commented specifically on the valuation of a particular sector of the stock market. Wells Fargo's Brian Jacobsen: SOUNDBITE: BRIAN JACOBSEN, PORTFOLIO STRATEGIST WELLS FARGO ADVANTAGE FUNDS (ENGLISH) SAYING: "It was just a little unusual to see that it's in the written testimony but not the oral testimony because they usually do just read right from the script. It will be interesting to see whether or not she changes that tomorrow. So was it just an oversight or was it an expression of her personal opinion as to what valuations look like. I think that this chairwoman doesn't want to draw too much attention to there being financial excesses because she doesn't see systemwide excesses in the financial area." Yellen also talked about the unintended consequences of historically low interest rates- leaving investors to take more risks: SOUNDBITE: JANET YELLEN, CHAIR, FEDERAL RESERVE (ENGLISH) SAYING: "The Committee recognizes that low interest rates may provide incentives for some investors to 'reach for yield,' and those actions could increase vulnerabilities in the financial system to adverse events." Asked about the timing of a rate hike- Yellen said that reports from Fed policy makers support the improving economy, and in turn a rate hike at some point in 2015, though nothing was set in stone: SOUNDBITE: JANET YELLEN, CHAIR, FEDERAL RESERVE (ENGLISH) SAYING: "The committee has given guidance that says what we will be looking at, is the progress that we will be making toward our two congressionally mandated objectives: maximum employment and price stability, our two percent inflation goal. So there is no formula, and there is no mechanical answer that I can give you about when the first rate increase will occur. It will depend on the progress of the economy and how we assess it based on a variety of indicators." The unemployment rate is now at just 6.1 percent- down almost one and a half percent over the last year.