Janice Yellen is now calling for inflated federal interest rates. She says that the case for such hikes has become stronger in recent months due to what she calls improvements in the labor market and the expectation that the economy will grow.
Yellen is the Chair of the Board of Governors for the Federal Reserve System. She previously served as the Vice Chair between 2010 and 2014. She was Chief Executive Officer and President of the Federal Reserve Bank in San Francisco; the Clinton Administration’s Chair of the White House Council of Economic Advisers; as well as a business professor for the Berkeley Haas School of Business.
She didn’t indicate when the nation’s central bank might be raising rates, but her comments seemed to suggest that the move might come this year. The Fed holds policy meetings in September, November and December.
At a three-day international assemblage of academics and central bankers in Jackson Hole, Wyoming, Yellen said, “The economy has been nearing the Fed’s statutory objective of employment and stability.”
However, the data released earlier this month actually showed that the economy has been even more sluggish than anticipated during the second quarter, with GDP expanding at just 1.1% the annual rate. Simultaneously, consumer spending grew at its fastest rate since 2014.
Yellen’s assertion runs contrary to prevailing wisdom. We’ve been hearing since the start of the year- and even longer really- for as long as the current presidential race has been taking shape, that the economy is on a downward turn.
Furthermore, long term models have shown that we are headed into a predictable cyclical recession. It doesn’t have to be a big recession, but history has shown us that barring a major influx of capital, the recession will come.
This leaves us with the question, “where does Yellen get her facts?” Also, why would she push wrong figures and an unwise policy from the Fed? What’s the agenda?
Subadra Rajappa, a Washington interest rate strategist at Societe Generale, said, “She has kicked the door open for the hike sooner than later.”
Like Rajappa, some experts are saying the only way Yellen’s idea holds up is in light of future predictable gains. But the way she phrases it, even if you give her the benefit of the doubt in this way, she’s being deceptive and justifying it with the presumption that future prosperity can be accounted for now. In other words, she’s counting our chickens before they’re hatched.
Prices for futures imply that investors speculate the odds are about even that the Fed will actually raise interest rates in December- more or less mirror Yellen’s sentiments. Investors appear to think the chances of a September or November rate hike are low.
The dollar rose against the Euro and Yen and on Yellen’s remarks before dropping again. Stocks have pared gains briefly, while U.S. Treasuries were trending up.
Yellen said Fed officials have a range of views on the future of interest rates in coming years. Current forecasts, she said, imply a 70% likelihood of settling between 0% and 3.75% at the close of 2017, and a 70% probability of settling between 0 and 4.5% at the close of 2018.
Uncertainty of this kind, Yellen said, is inherent in the difficulty of anticipating economic disturbances.
Yellen spoke at a Fed conference concerned with new monetary policy, along with central bankers all anxious to discover new ways to pump life into economies even after rates are slashed to nigh on zero and with money flush banks.
She spent much of her time delineating how the Fed might deal with recessions in the future now that economists and Fed officials alike believe that aging populations seem to be dragging the U.S. economy backward.
Because slowed growth means U.S. interest rates will need to drop, some analysts suggest the Fed will have less room to maneuver around future recessions since rates will be less flexible.
This view, according to Yellen is, “exaggerated.” She says the Fed will have the ability to leverage forward guidance and bond purchases to ease conditions. She noted that the Fed still plans to wind down its huge balance sheet. That, however, will take some time to accomplish- and the balance sheet will still be useful for policy making for a good while longer.
The fed may still explore many other options. One would hope Fed officials will maintain a healthy dose of skepticism about the pronouncements of people like Yellen- with clear connections to the Clintons- who seem more interested in setting the place alight with wild speculation than actually reporting meaningful observations about our economy.
Regards,
Ethan Warrick
Editor
Wealth Authority
