Fed Chair Janet Yellen gave a tepid thumbs-up Tuesday to the economic recovery while expressing disappointment in housing and pledging to remain vigilant over asset bubbles.
While Yellen's remarks to a Senate committee were mostly benign and cautious on the economy, a separate Federal Reserve report indicated concern over asset prices.
"Valuation metrics in some sectors do appear substantially stretched—particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year," remarks in the full policy report accompanying her testimony said.
The comments gave the market some pause, sending shares in Yelp, for instance, down more than 4 percent and all of the major indexes into negative territory. Broadly speaking, social media and biotech stocks led decliners on the Nasdaq, which was off more than 1 percent before recovering some of the losses.
More broadly, though, Yellen, while noting dangers of "a reach for yield" among investors that was keeping volatility low, said asset prices "remain generally in line with historical norms."
The Fed chair gave no specific indications as to when the central bank will begin raising interest rates other than probably in 2015, and broke from previous unemployment and inflation targets for when a rate might be considered.
"There's no formula and there's no mechanical answer that I can give you about when the first rate increase will occur," she said during the question-and-answer portion of her testimony before the Senate Banking Committee. "It will depend on the progress of our economy and how we assess it based on a variety of indicators."