SF Fed: Stock Market is Undervalued!

SF Fed’s Williams: ‘it’s not obvious that the stock market is overvalued’


Now that the D.C. debt-ceiling and budget arguments have been pushed into 2014, consumer confidence is going to figure as a big factor moving forward on the Federal Reserve’s tapering decision, according to San Francisco Fed President John Williams.


Williams also indicated he’s not particularly worried about stock prices.


Williams made the comments in a press roundtable following the Asia Economic Policy Conference at the Federal Reserve Bank of San Francisco Tuesday.


Williams said:

Quote :

“One factor that I’m watching carefully going forward is now that we’ve escaped that period of the government shutdown , the debt-ceiling debate do we see confidence kind of sort of coming back? Those earlier episodes , was that a temporary blip? Or is that going to have a longer lasting effect on people’s willingness to spend and companies willingness to hire.”

Data has been somewhat disappointing in terms of growth last spring, Williams said.


With respect to stocks being near-record highs and the Fed’s hand in that, Williams said the media talks more about stock prices than the Fed does.  Williams said policy makers take economic data, household wealth, and money in the stock market into account, but they are not drivers of monetary policy.

Quote :

“If you look at the valuation of stocks today compared to earnings and dividends and relative to historical averages, it’s not obvious that the stock market is overvalued, in fact a lot of models will tell you that it’s undervalued given how strong profits have been.”

Regarding large movements of capital flows to and from emerging markets triggered by Fed moves, Williams said policy shifts will be pretty gradual even though there was a big shift out of emerging markets when talk of the taper started. Hopefully, he said, a lot of  that was money wrapped up in carry trades, or froth, that got burned off.


“Going forward hopefully we won’t have as much choppiness around that,” he said.


Other takeaways from Williams:

• There’s little likelihood that the employment threshold for considering rate hikes will be lowered past 6.5%, but Williams stressed that the figure is a threshold, not a trigger.
  
  
  
• Asset buybacks and rate hikes are separate tools. The Fed has to take its foot off the gas before even getting close to a rate hike. The $4 trillion or so on the Fed’s balance sheet will exert downward pressure on interest rates for many years. “If you keep the pedal to the metal, you will crash into a wall,” he said.
  

http://blogs.marketwatch.com/thetell/2013/11/05/sf-feds-williams-its-not-obvious-that-the-stock-market-is-overvalued/