On Friday, February 2nd, 2018, Janet Yellen served her last day as Chair of the United States Federal Reserve, with Jerome Powell set to be sworn in as her replacement on Monday, February 5th, 2017. Under Yellen’s leadership, the Federal Reserve had planned three interest rate hikes in 2018 – decisions that would have a major impact on the world economy and the immediate future of the United States.
It didn’t take long for now-former Federal Reserve Chair Janet Yellen to speak publicly, and on Sunday February 4th, 2018, she commented on the current value f the stock market: “Well, I don’t want to say too high. But I do want to say high. Price-earnings ratios are near the high end of their historical ranges. If you look at commercial real estate prices, they are quite high relative to rents. Now, is that a bubble or is too high? And there it’s very hard to tell. But it is a source of some concern that asset valuations are so high.”
As new Federal Reserve Chair Jerome Powell was sworn in on Monday February 5th, 2018, the Dow Jones Industrial Average fell by almost 1,600 – about 6% – before recovering with a total decline of 1,179 points by the end of the day. All major indexes felt losses with the Nasdaq Composite falling by 3.8%, the S&P 500 decreased by 4% and the broad Russell 2000 dropped by 2.9%.
The uncertainly over future monetary policy decisions by incoming Federal Reserve decision makers (three vacancies at the Fed have yet to be filled by President Trump’s administration) and Yellen’s outgoing commentary unquestionably influenced the recent market drop – but the full story is far more complicated.