During the Joint Economic Committee meeting last Wednesday, Federal Reserve chairman, Janet Yellen, expressed one very important issue: risk…
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According to her, the U.S. economy is facing quite a bit of risks stemming from geopolitical pressure to the job market, even in spite of an unemployment rate decrease. Yellen explains her concerns about the labor and housing markets:
“We’ve really never seen a situation where long-term unemployment is so large, so large a fraction of total unemployment. Around 35%. That’s very unusual.
One cautionary note though is that readings on housing activity – a sector that has been recovering since 2011 – have remained disappointing so far this year and will bear watching.”
D.A. Davidson’s Chief Investment Strategist, Fred Dickson, explains that the housing sector is a key indicator for the economy’s future:
“She sees the housing start numbers being probably 25% of what they should be at this point in the cycle. She knows housing has a very big economic impact, with each dollar spent on a house in some ways generates four more dollars through the ancillary services, contractor, contractor spending.”
Risky Monetary Policy
Chairman Yellen responds to many questions about the Fed’s quantitative easing policy, confirming that the program is on track to wind down by this fall:
“We anticipate continuing to reduce our asset purchases in measured steps. So the answer is, ‘Yes.’ Now if something were to change notably about the outlook, we would reconsider that plan.”
Janet, determined to stay vague, wouldn’t give an exact date for raising rates. But she did mention that there would only be a reconsideration if there was a downturn in the labor market or disruptions to inflation, which she predicts will rise to around 2%. Other than that, she stays pretty tight-lipped:
“There’s no mechanical formula or timetable.
“There is no specific timeline for doing that.
“The Committee has simply said a ‘considerable time’ without mechanically stating what that time interval is.”
All in all, the Fed Chair remains concerned about the labor market, in spite of unemployment hiting at 5.5-year low of 6.3%. Yellen claims it’s down for the wrong reasons… and that those wages are still a worry for those in the workforce.