Federal Reserve policies are not engineered to keep stocks high, Chairwoman Janet Yellen insisted Wednesday.
Appearing before the House Financial Services Committee, Yellen denied that propping up stock markets is a “third pillar” of Fed policies, in addition to maintaining low inflation and low unemployment.
“We do not target the level of stock prices. That is not an appropriate thing for us to do,” Yellen said.
Yellen was asked by Rep. Ed Royce, R-Calif., if the Fed tries intentionally to smooth out volatility in financial markets. Royce cited perceptions that the Fed would cut rates or hold off rate hikes if markets fell, noting that the Fed has delayed rate hikes this year amid market volatility.
Yellen responded that the Fed targets only a growing economy and the dual mandate set out by Congress, not stocks.
She added that rate increases, which would go along with an improving economy, shouldn’t be taken as bad news by investors.
“One shouldn’t assume that it will necessarily be a negative scenario for stock prices,” she said of rising rates.
In the past, Fed observers have suggested that there is such a play as a “Greenspan put,” named after former Fed Chairman Alan Greenspan. The perception was that investors could make money buying stocks if the market sold off, because Greenspan would respond with lower rates to boost equities.
