The danger is that in these circumstances, an unwarranted, perhaps euphoric, extension of recent developments can drive equity prices to levels that are unsupportable even if risks in the future become relatively small. Such straying above fundamentals could create problems for our economy when the inevitable adjustment occurs."
The second factor is the unexpected drop in exports during the first quarter, much of which was related to transportation bottlenecks. This points to a partial recovery in the second quarter and later in the year. Notice that we are expecting only a partial recovery in the level of exports—an issue I will return to in a moment.