Officials of the Federal Reserve have noticed the stock market's inexorable rise. The same issue has been discussed during their July meeting. The conclusion? The rise was based on fundamentals, and thus perfectly safe.
Officials of the Federal Reserve had an exhaustive discussion prior to arriving at this conclusion. It was discussed whether the equity prices rise posed greater financial dangers. The officials also pondered whether the accommodating policies of the Federal Reserve itself was contributing to risk taking. The minutes taken during the meeting put it succinctly that a few participants have duly noted that macroeconomic factors remained favorable. This led to backing for the present equity valuations. It was noted by participants that increases in the equity price seem to arise from more leverage use by the investors. Such increases will not pose any kind of notable risk to the financial stability. Such an assessment is different from the views put forward by seasoned and well-known market veterans.
Cautionary statements have been issued by Ray Dalio, the Hedge fund manager, Jeffrey Gundlach, the bond expert, and Howards Marks, the investor who is a legend in his own right. Every one of them has issued a few cautionary statements concerning the issue of market prices.
The Standard & Poor 500 have gone up by almost 11 percent this year. This rise was mostly due to a prevailing sentiment for a better business-friendly climate prevalent in Washington. There was also the matter of better earnings reports in consecutive quarters. The S&P 500 is now up by 270 percent when compared to its lows in March 2009.
Officials of the Federal Reserve arrived at the end of their July discussions that the financial conditions continue to be stable. This was due to the aggressive regulations which kept the banking industry safe. A few members did show their concern over lending for commercial real estate ventures by the smaller banks. These members were afraid of the pace of the rise in the real estate prices. This is applicable for the multi-family segment. They also pointed out that the pattern of borrowing activities along with lending of a few mentioned government sponsored enterprises may well pose a number of stability risks.
The minutes of the July meeting of the Federal Reserve was released in August 12. Many investors were afraid that the stock market was moving towards a bubble.