Yellen Tells Committee Fed Will Proceed With Caution

  • Posted Tuesday, July 15, 2014 at 08:28 PM

TANGIBLE INVESTMENTS - Los Angeles - by James O'Dell - The Gold price dipped to a four week low of $1,296.10 an ounce on Tuesday, while Silver eased to $20.83 an ounce as the dollar strengthened and investors adjusted focus to Fed chief Janet Yellen's report on monetary policy to Congress. The report highlighted the central bank's resolve in ending its bond buying stimulus as early as October, while keeping interest rates near zero.

"The Federal Reserve does need to be quite cautious with respect to monetary policy," said Yellen in her second bi-annual report before the Senate. "We have in the past seen sort of false dawns, periods in which we thought our growth would speed, pick up and the labor market would improve more quickly and later events have proven those hopes to be unfortunately overly-optimistic," Yellen told the committee. "We need to be careful to make sure that the economy is on a solid trajectory before we consider raising rates."

The Fed then took the unusual step of noting its unease about the "stretched" valuations in the securities markets, specifically pointing to biotechnology and social media stocks. “Equity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched, with ratios of prices to forward earnings remaining high relative to historical norms,” said the Fed in its report.

The Fed's scrutiny hammered biotechs with their worst losses in quite some time, while the stock of Yelp, a popular social media company, plunged by as much as 4 percent. Roberto Perli of Cornerstone Macro pointed out that Yellen's testimony was not as incisive about stock valuations as was the written Fed report. "I don't see Yellen or the Fed changing their mind anytime soon," about the path of interest rates, said Perli, before calling the Fed's observation about stock values a rhetorical side note.

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