proper thread? ;)
Tuesday October 12, 6:54 pm Eastern Time
Fed's Meyer says stock price gains may be justified
WASHINGTON, Oct 12 (Reuters) - Federal Reserve Governor Laurence Meyer said on Tuesday the sharp rise in U.S. equity prices over recent years was challenging traditional stock valuations but may at least partly be justified by underlying shifts in the economy's structure.
In prepared remarks for delivery at a University of Missouri lecture series in Columbia, Missouri, Meyer noted that there was worry in some quarters that the United States was experiencing ''a bubble'' in stock prices that could abruptly end.
But he suggested such concern, while easy to understand, may be overdone. A text of his remarks was issued in Washington.
''It is true that the rise in equity prices -- averaging 25 percent to 30 percent a year over the last four years -- is unprecedented and that current values challenge previous valuation standards,'' Meyer said.
But he said structural changes in the economy, such as productivity gains, may have raised the sustainable level and growth of profits and made investors more confident.
''Such structural changes could, in principle, justify at least a substantial portion of the rise in equity prices,'' Meyer said.
He noted that at a conference of central bankers in Jackson Hole, Wyo., in late August, there was substantial discussion about whether policymakers should use policy to nudge equity prices to their estimate of fundamental value.
Meyer noted that some people believed that since monetary policy was used to supply liquidity when credit markets faced difficulty, it could be used to protect market prices in a downturn.
But he noted that Fed Chairman Alan Greenspan had ''emphasized that monetary policy does not operate with a target for equity prices when they are falling any more than it does when equity prices are rising.'' Policy can respond ''only indirectly to equity prices'' by taking them into account as one gauge of overall demand, Meyer said.
http://biz.yahoo.com/rf/991012/0h.html |
