Yellen warns of ‘dangers’ in high stock prices

Federal Reserve Chairwoman Janet Yellen warned Wednesday about the “potential dangers” of soaring stock prices.

“Equity market valuations at this point are generally quite high,” Yellen said at a forum in Washington. “There are potential dangers there.

“They are not so high when you compare the returns on equities to the returns on safe assets like bonds, which are also very low,” she added.

{mosads}Trading on Wall Street dipped following her remarks, which played into fears that stock prices have peaked in recent months, outpacing the economic recovery.

Yellen’s comments come as Fed policymakers are grappling with when to raise interest rates, which have remained at zero percent since the financial collapse. Most economists predict the rate increase could come as early as June or as late as early next year.

In her prepared remarks, Yellen also criticized financial institutions for their role in the 2008 crash.

“Too often financial institutions encouraged the behavior that resulted in such excessive debt,” Yellen said. “Financial institutions have the potential to inflict harm on society.

“Instead of promoting financial security through prudent mortgage underwriting, the financial sector prior to the crisis facilitated a bubble in the housing market and too often encouraged households to take on mortgages they neither understood nor could afford,” she added.