Powell Sidesteps GameStop Frenzy, Sees Vaccine Buoying Market

January 27, 2021

Federal Reserve Chair Jerome Powell sidestepped several questions about the one thing virtually all of Wall Street is buzzing about: the market implications of GameStop Corp.’s meteoric rise.

Powell refused to comment on any individual stock or a single-day move in the equity market, saying instead that financial-stability vulnerabilities overall are “moderate.”

The Fed chair added that the outlook for vaccines and expectations for additional fiscal stimulus have been the main drivers of soaring asset prices in recent months, even though monetary policy does play a role.

“If you look at what’s really been driving asset prices, really in the last couple of months, it isn’t monetary policy,” Powell said in a press conference Wednesday following a meeting of the Federal Open Market Committee. “The connection between low interest rates and asset values is probably something that’s not as tight as people think.”

Stocks reacted poorly to Powell’s comments, tumbling to session lows, before losses accelerated after he finished. the S&P 500 fell 3% as of 3:39 p.m. in New York, headed for the biggest loss since October.

But, in what used to be the sleepier corners of the market, day traders continued to fuel rallies in stocks favored by online chat rooms. GameStop doubled again, while AMC Entertainment Holdings Inc. almost quadrupled.

The surges in companies that haven’t had any change to their underlying fundamentals continues to drive news cycles and has started attracting scrutiny from areas far beyond the normal Wall Street crowd.

Earlier, the White House press secretarysaid U.S. Treasury Secretary Janet Yellen and the Biden administration’s economic team are watching stock-market activity around GameStop and other heavily shorted companies. Senator Elizabeth Warrenweighed in, saying she intends to make sure securities regulators “wake up and do their jobs.”

Powell, for now, did not add his voice to the growing chorus, and downplayed concerns about rising market prices. He said the Fed reviews a “range” of financial assets to assess stability, including equities, leverage in the banking system and leverage in the non-banking system among households and companies. Taken together, he rated the vulnerabilites to stability as “moderate.”

Powell said Fed officials had not discussed raising margin requirements for investment firms under a rule known as Regulation T, which governs how much investment firms can loan to clients to finance the purchase of securities.

“Over the years, we consult the fact that we have that authority, but no, it’s not something we’re looking at right now at all,” Powell said.