MercoPress. South Atlantic News Agency

Fed warns stock market levels present 'potential dangers', but sees “no bubbles forming”

Ms Yellen told IMF managing director, Christine Lagarde, that the US central bank was watching the issue closely.

The chair of the US Federal Reserve, Janet Yellen, has warned stock market levels present “potential dangers”, insisting current valuations, which have seen key US and UK indicators reach record levels, were “quite high”. However she did not see 'any bubbles forming'.

 Ms. Yellen told IMF managing director, Christine Lagarde, that the US central bank was watching the issue closely.

The Dow Jones hit a record of 18,288.63 points earlier this year, while the FTSE 100 reached 7,103.98 and Germany's Dax 12,374 points - also records - last month.

US regulators have made great progress in fixing flaws in the financial system in the wake of the global banking crisis, Ms Yellen said. She was speaking to Ms Lagarde at a finance and society conference in Washington DC.

In earlier remarks, Ms Yellen pointed to the contributions the banking system had made to both society and the economy. But she soon turned her speech towards the “distorted system of incentives” and weak controls in the financial industry that preceded the 2008 financial crisis.

“A combination of responses to distorted incentives by players throughout the financial system created an environment conducive to a crisis,” Ms Yellen said.

She said regulators were too focused on individual firms before the crisis, and had not focused enough on the safety of the whole financial system.

Policymakers, including the Fed, “remain watchful for areas in need of further action or in which the steps taken to date need to be adjusted”, she added.