On June 6, Federal Reserve Chair Janet Yellen gave a speech to the Worlds Affairs Council of Philadelphia about the status of the national economy. During the luncheon, Yellen and I were seated at the same table. Not only did I have the pleasure of dining with her, but I also spoke directly with her.
Yellen is the fourth Federal Reserve Chair I have met. I had the opportunity to meet with Paul Volcker, Alan Greenspan and Ben Bernanke. When comparing my encounters with each chair in my mind, my interaction with Yellen was pleasant. With her friendly disposition, she showed interest in me by maintaining an engaging conversation. In fact, after learning about the work I do, she assumed my clients probably weren’t very happy with her on account of low interest rates. During her speech, she exhibited concise public speaking skills—though her message lacked clarity.
Yellen sugarcoated her words as she painted a rosy picture of the U.S. economy. She spoke directly to the major points of interest, but failed to provide a forthcoming depiction of the national economy’s status. She ended the speech with a theme of overall “ uncertainty.” She used that word as a blanket term to describe the following four major economic issues:
Resilience of domestic demand
The economic status abroad
Yellen said in her speech, “To be sure, there is considerable uncertainty about the economic outlook,” and with so much doubt in the economy as a whole, the Fed, as she stated, is unsure when they will raise interest rates. There is no established timeline for an interest rate hike, but she mentioned vaguely any monetary policy moving forward would reflect incoming data while evaluating present risks.
The U.S. Federal Reserve is the only central bank that follows a “dual mandate plan,” meaning the Federal Reserve maintains two initiatives at all times:
Each objective can be reached via a different, multifaceted method, and in her speech, Yellen spoke to each of those initiatives.
Employment: After the 2008 recession, Philadelphia’s unemployment did not rise above the national average, Yellen mentioned. However, she also described how the city’s employment rate took longer than most cities to fall back down. Yellen said, “unemployment here has fallen appreciably…helped by a revival in residential and commercial construction that is evident around the city.” Contrary to Yellen’s positive outlook, on June 3rd the country got the worst job reports in almost six years—with roughly 102 million American jobless. Only 36,000 jobs were created last month, while the market anticipated 200,000 new jobs. Another 450,000 people left the labor force in May, causing the unemployment rate to plunge to 4.7 percent—which is phony government manipulation to make us believe that the economy is doing just fine. Theoretically, if everyone were to leave the labor force then the unemployment rate would drop to zero—Washington might cheer but no one would be working.
Price Stabilization: For the past four years, US inflation has undershot the Fed’s annual target of 2 percent—giving the Fed leeway to raise rates more slowly. Generating inflation is becoming very difficult for the Fed, as they have failed conspicuously from achieving long run price stability.
Gerry Banmiller, President and CEO of 1st Colonial Community Bank and New Jersey-native, says despite Yellen’s report, the economy continues to slow. After six months of decline, the key manufacturing index continues to fall, and although Yellen mentions how lower energy prices increase buying power, the low price of oil could indicate a global recession in the future. In fact, Morgan Stanley estimates a 20 percent chance of US recession this year.
Yellen delivered a positive overview of the economy, and she covered a wide array of issues. However, her message was laced with hesitation and “uncertainty.” Appointed to the position of vice-chair by President Obama in 2010, and ultimately to chair in 2014, amidst an election year, perhaps Yellen hoped to reassure the public through her soft-spoken words that the country would benefit from another Democratic administration moving forward. There is no telling her intention, if any, but it’s important to consider the circumstances and timing of any public address.
This article was written by Steve Cordasco and originally published by Philadelphia Business Journal.
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