by Optimization with an Impact (OpIm)
Clearly, financial market excess (FME) has been building up due to increased risk appetite and low market volatility. The Swiss Re FME index is now close to pre-crisis average levels (see Figure 7). The Fed has warned about these risks on a number of occasions, even though they have largely been engineered by the Fed itself. In a February 2013 speech, former Fed Governor Jeremy Stein highlighted the overheating in credit markets. In her semi-annual testimony, Fed Chairwoman Janet Yellen later identified small cap, biotech and social media stocks as being highly valued relative to the historical norm.