Janet Yellen heads back to the House
Business Correspondent Zac Brown stayed up very late (Australian Eastern Standard Time) into the early hours of Friday morning dissecting the ever-fiery Congressional hearings of Federal Reserve Chair, Janet Yellen. As expected, things were eventful.
On Thursday, Federal Reserve Chair Janet Yellen’s once again fronted the Republican-controlled House Financial Services Committee to discuss monetary policy and recent economic developments within the United States and across the world. Commodity prices, interest rate levels and addressing the inequality still prevalent in the US dominated the dialogue.
Many members of the FSC were concerned as to how the Fed was reacting and planning out a reaction to the recent strife within global financial markets, namely across northern Asia, and into Europe. Our economics textbooks dictate that the basic laws of supply and demand mean that with oil prices recently plunging, the reaction from the economy would be beneficial into the long-term, creating an increase in overall productivity as supply of the commodity became more accessible. Though conversely the price shifts on the back of oversupply and geopolitics have managed to decimate the energy sector of the US and dwelling construction is slowing according to official data. An emphasis on overseas performance was made, saying that the US may be dependent on the emerging economies and their performance.
Regardless of recent market pessimism, Yellen remained largely optimistic about the American economy, citing that wages had grown steadily and that jobs in a broader spectrum have in fact been on the rise. She made clear her objective as leader of the Fed was a 2% inflation rate — one that well under delivered — and full employment. On the subject of job creation however, members of the Fed stated that there was a heavy skew towards creation of low skilled jobs. This coupled with a wage that is still, despite recent growth, not on par with the cost of living. The Fed stated that although the growth is good, it’s not where it ultimately should be — in the middle class sector. In an acute assessment one member stated that simply increasing the work forces’ skills aren’t enough. Many jobs (garbage disposal and waitress/waiter) are still needed to keep society functioning, yet don’t pay enough to live off.
In light of the information being received by the Fed, Yellen addressed where the rates may go exactly. She said for now that they would hold steady, though it was hard to tell at a stage of such intense volatility. The infamous negative interest rate was also a reoccurring topic. Yellen largely disregarded such an event happening. Legalities revolving around the occurrence were made into a clear obstacle. Janet made it obvious that although the Fed could indeed do it, there would need to be a careful examination both economically and legally, to assess the ramifications of such a movement. Japan and the Eurozone were used as prime examples of what a move of desperation it was considered. The senate questioned whether such a move would impact ‘american taxpayer’ with a lot of skepticism.
Regulation still being a prevalent topic, especially towards the later half of the hearing, many of the questions and answers seemed fairly roundabout. Yellen went about dampening congress’ fears of another ‘too big to fail’ due to regulation being worked on to be put in place. Stress testing and transparency were being put in place and worked on with other governing and regulatory bodies. There were fears that smaller banks were being over regulated and the larger banks were acting too freely. Yellen responded that the issues were being addressed.
Overall, it seems the Fed is cautious though fairly optimistic in its outlook. It doesn’t seem to think that current market turmoil will be enough to fight back against falling unemployment and steady wage growth. Equality is an issue that is being looked at, and regulation is being put in place to prevent it getting worse. Negative interest rates seem to be a non-issue at this stage and the rates should stay in place for the short term.
