In a televised interview on Sunday, Federal Reserve Chairman Jerome Powell expressed optimism about the growth of the U.S. economy, and he predicted that U.S. job growth will accelerate in the coming months. Meanwhile, investment experts warned investors that investment decisions need to be made with caution in the early stages of economic recovery.
In an interview on CBS’s “60 Minutes,” Federal Reserve Chairman Jerome Powell reiterated his optimism about the U.S. economy and warned of the risks involved.
Fed Chairman Jerome Powell: “We think we’re at a point where the economy is about to start growing rapidly and jobs are growing rapidly. The main risk to our economy at this point is really still the potential for disease to spread again.”
Recent U.S. economic data has been generally upbeat, with more than 900,000 jobs created in March, better than expected. Meanwhile, economic activity in the previously hard-hit leisure and entertainment sector increased significantly as vaccination rates continue to rise across U.S. states and consumers regain confidence in going out.
And while the good news for investors is that the economic rebound appears to be a reality, the bad news is that financial assets are now valued at unprecedented heights, with everything from stocks to bonds to real estate priced out. The S&P Composite 1500 has a P/E ratio of 37 times, more than twice the historical average. The P/E ratio is an important indicator of whether a stock is cheap or expensive.
Investment experts warn that such high valuations pose a risk to investors’ future returns.
Lance Roberts, host of The Real Investment Show: “Everyone expects the economy to skyrocket, but higher taxes, higher prices due to inflation, are all factors that are holding back economic growth. At some point, the market may wake up and realize that the economy isn’t growing as fast as expected, but that assets need to be revalued, and that’s when investors suffer losses.”
Fed Chairman Powell cautioned that the current U.S. economic recovery is uneven and incomplete, and that despite a big jump in employment in March, the labor market still has 8.4 million fewer jobs than it did before the viral outbreak.
Federal Reserve Chairman Jerome Powell: “We’ve heard that after the outbreak came in, a lot of companies were trying to figure out how to make their technology more efficient so they could hire fewer people. So there will be millions of people who will find it very difficult to go back to the jobs they used to have and resume their lives as they did a year ago.”
Powell promised that the Fed will still provide great support for the economy and will not abandon its efforts to zero interest rates and purchase U.S. debt.
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