U.S. Federal Reserve Chairman Jerome Powell said he sees some “froth” in equity markets and it is not just due to the central bank’s accommodative monetary policy.
What Happened: During a virtual press conference on Wednesday after the Fed’s monetary policy meeting, Powell said that vaccination and reopening of the economy are also factors contributing to the froth in the capital markets.
Powell was responding to a question regarding financial stability from Brian Chung, a reporter with Yahoo! Finance.
Chung noted that amateur people who might not follow finance daily are paying attention to GameStop Corp. (NYSE: GME) and meme cryptocurrency Dogecoin (DOGE). He asked Powell if the Fed saw a relation between low rates and easy policy to these and whether there was a financial stability concern from the Fed’s perspective at this time.
Powell responded by saying that the Federal Reserve has a broad framework for financial stability and tries to stick to it.
“So we don’t just jump from one thing to another. I know many people just look at asset prices and they look at some of the things that are going on in the equity markets, which I think do reflect froth in the equity markets,” Powell said. The Fed chairman added that some of the asset prices are high.
Why It Matters: Retail traders made their presence increasingly felt in the markets last year amid the pandemic as boredom from the COVID-19-induced lockdowns and the industry-wide decision to drop commissions encouraged them to invest in stocks.
The higher personal savings levels and stimulus checks from the government encouraged amateur investors to dabble in the stock markets and helped accelerate the retail trading boom.
Shares of heavily shorted stocks such as GameStop and AMC Entertainment Holdings Inc. (NYSE: AMC) saw extreme volatility this year as retail traders belonging to the Reddit Investor forum r/WallStreetBets bid up the stocks to create a short squeeze.
Dogecoin has also now emerged as retail investors’ darling. The meme cryptocurrency started to attract attention earlier this year around the time of the Reddit-community-fueled GameStop short squeeze.
The Shiba Inu-themed cryptocurrency skyrocketed to hit an all-time high of $0.4377 on April 16, lifted by social media buzz. Dogecoin has risen more than 4% in the past 24 hours and is trading at $0.3102 at press time.
Price Action: GameStop shares closed almost 0.5% higher on Wednesday at $178.58.
This story was originally published by Benzinga
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