Bill Gates thinks the stock market is a little pricey.
In an interview with CNBC’s Squawk Box on Tuesday morning, the Microsoft founder said that low interest rates have allowed stocks to get expensive.
“Well certainly stocks are expensive,” said Gates. “But it’s all in relationship to the macroeconomic picture, which I’m certainly not an expert on, and I find, you know, kind of amazing that interest rates have stayed so low for so long.”
Of note, stocks are expensive using most common valuation metrics. Forward 12-month price-to-earnings ratio is above its long-term average and the cyclically adjusted P/E from economist Robert Shiller hasn’t showed stocks this expensive outside of the Crash of 1929, the tech bubble, and the 2007-2009 financial crisis.
Gates said in the interview that the main reason that stocks are so high is “because of the interest rate environment.” The tech giant said that the stimulus provided by the Federal Reserve’s low interest rate policy has helped the US economy, but also pushed stocks to frothy heights.
Gates also said that as the Federal Reserve starts to raise interest rates, there is a possibility for stocks to fall if the central banks hikes faster than the three times that are priced into the market (one rate hike in 2016 and two rate hikes in 2017).
“Right, so that’s probably priced in,” Gates told CNBC’ Becky Quick. “So if they go up six, then you would see some — the market would come down somewhat.”
The Federal Reserve begins its two-day December meeting on Tuesday and is widely expected to announce a 25 basis point increase for interest rates on Wednesday.