Speaking before the Economic Club of New York today, Federal Reserve Chair Janet Yellen seemed to give the stock market cause for celebration by indicating the central bank won’t be making any sudden moves to tighten its “taper” as long as the nearly five-year-old recovery remains so fragile.
She laid out three questions that will guide the Fed’s policy setting Federal Open Market Committee:
- Is there still significant “slack” in the labor market?
- Is inflation moving back toward 2 percent?
- What factors may push the recovery off track?
The answers are yes, probably not and many, respectively. Reading between the lines, Yellen understands that this is unlike any recovery in the post-World War II era. Especially troubling is the ongoing jobs crisis that isn’t fully captured by the official unemployment rate:
Other data suggest that there may be more slack in labor markets than indicated by the unemployment rate. For example, the share of the workforce that is working part time but would prefer to work full time remains quite high by historical standards. Similarly, while the share of workers in the labor force who are unemployed and have been looking for work for more than six months has fallen from its peak in 2010, it remains as high as any time prior to the Great Recession
My translation: The Fed’s twin mandate is low inflation and low unemployment. It has much to do on the second front. Yet interest rates are effectively zero. Unconventional measures such as the purchase of mortgage bonds have kept the recovery going. But they haven’t been enough to really put a meaningful dent in joblessness, especially making up the “jobs gap.”
On question No. 3, it was probably better that Yellen did a long-form Greenspanian Yoda impersonation. If she answered, “China,” “Ukraine,” “Abenomics,” the kind of apocalyptic flash crash feared by the likes of Goldman Sachs, inequality, rent-seeking, etc…well, the Dow wouldn’t be rallying today.
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Today’s Econ Haiku:
Who knew that Boeing
Had a management guru
Not Welch but Dilbert