Wednesday, April 13, 2016

Yellen The US is not a ‘Bubble Economy'


Yellen – Rebuffing Political Rhetoric – Bubble Ready to Burst

Janet Yellen, Federal Reserve Chair had touted recently on the strength of the United States economy, rebuffing political rhetoric recommending a bubble was ready to burst. Yellen noticing a healing labour market and a 5% headline unemployment number, had commented, `I certainly wouldn’t describe this as a bubble economy. Yellen had been on a panel with the earlier Fed Chairs Ben Bernanke, Paul Volcker and Alan Greenspan at the International House in New York and the U.S. central bank heads had discussions on the U.S. economy as well as monetary policy all over the world.

Yellen’s comment came soon after the Republican presidential contender Donald Trump’s disagreement that an economic bubble would erupt. She noted that she did not see `imbalances’ like `clearly overvalues’ asset prices. Though Volcker acknowledged that he saw some overextended pieces of the financial system he agreed stating that he does not believe that a bubble exists. Yellen adds that the global economy has been seen as a comparatively weak growth inspite of the positive signs in the U.S. Restrained approach had been taken by the Fed on raising interest rates this year after raising its target for the first time in almost a decade, in December.

Fed to Watch Carefully – Occurring in Economy

This year the policy committee of the bank now tend to project two rate hikes. Yellen has stated that she does not consider the decision taken in December as a mistake, since indicators during that time portrayed substantial progress towards the Fed’s labour market as well as inflation goals. Going ahead, he noticed the Fed would watch very carefully what is occurring in the economy.

The Fed had dealt with drooping global economy and U.S. inflation below its target, since it decides on how quickly to increase rates. The tightening path of the Fed came as other central banks all over the world including those in Europe and Japan tend to have eased. The policy committee would meet next on April 26 and 27. Some of the observers of the Fed have quizzed on how the central bank would react to a probable recession with policy already accommodative.

Yellen’s Comments – U.S. Stock Market Futures Dropped

On Thursday, Bernanke noticed that the fiscal policy `does not have a role to play’ on top of monetary policy. Greenspan added that the monetary policy should not have the whole load of battling an economic slowdown but he warned against creating more debt with increased government spending.

Yellen had also addressed a recent crusade by Minneapolis Fed President Neel, Kashkari who had floated breaking up large banks to increase financial system stability. She had observed that she shared the concern of Kashkari regarding ending firms’ `too big to fail’ status. However, she stated that the policies such as capital and liquidity needs and stress tests have improved the safety and soundness of the banking system. She commented that she feels more positive on the progress made.

She was also of the belief that the issue is within the purview of Kashkari, noticing that the decentralized structure of the Fed enables independent views. In the wake of Ms Yellen’s comment, the U.S. stock market futures dropped as traders processed signs from the Fed chairman that she would be willing to follow increases in interest rates in the future.


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