Federal Reserve Chairwoman Janet Yellen on Wednesday warned of the risks in the stock and bond markets in the environment of low interest rates. In a conversation with Christine Lagarde, the managing director of the International Monetary Fund, Yellen said that equity-market valuations "generally quite high" and that "there are potential dangers there." The Fed is also aware of the possibility that there could be a sharp jump in long-term rates when the Fed raises interest rates. But overall, Yellen said that she thought risks to financial stability are moderated. "We're not seeing any broad based pickup in leverage, we're not seeing rapid credit growth, we're not seeing an increase in maturity transformation," which are the hallmarks of bubbles, she said. U.S. stocks took a turn for the worse in the wake of Yellen's remarks.
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