Is The Fed's Stock Valuation Model Working Again?

I. The Fed's Stock Valuation Model

In his famous December 5, 1996 speech, Fed Chair Alan Greenspan asked, "How can we judge whether stocks are overvalued or undervalued?" His staff apparently scrambled to examine various stock valuation models to help him gauge the market’s exuberance. One such model was made public, albeit buried in the Fed’s Monetary Policy Report to Congress that accompanied Greenspan’s congressional testimony on July 22, 1997. I dubbed it "The Fed's Stock Valuation Model" (FSVM). The name stuck, though Fed officials never publicly endorsed it.