Taking over as Federal Reserve Chairman Feb. 3 for Ben S. Bernanke, 67-year-old Janet Yellen told the 2014 National Interagency Community Reinvestment Conference that the central bank will continue its monetary policy of holding the federal funds rate between zero and quarter percent, the same it’s been for the past five years. Yellen, while seeing progress from the dog days of the Great Recession in 2007-2009, sees the nation’s 6.7 percent unemployment rate as a problem for the chronically unemployment falling off government statistics. Planning to continue quantitative easing and record low interest rates, Yellen explained the pain from the Great Recession hasn’t ended for the chronically unemployed. “I think the extraordinary commitment is still needed and will be for some time, and I believe that view is widely held by my fellow policy-makers at the Fed,” said Yellen.
Maintaining Bernanke’s loose monetary policy helps push down bond yields and propel Wall Street to new heights, improving the labor situation. While some conservative economists complain about QE3 adding to the national debt, the vast majority, as Yellen says, believe that more stimulus is needed to prevent the economy from relapsing into recession. Phasing out QE3, Yellen sees low interest rates as the only safety net to prevent a double-dip. Telling members of the NICRC conference that there’s still hardship in the jobs market, Yellen said the economy’s “considerably short” of the Fed’s goal of maximum stable employment and a low two percent inflation rate. Reducing the Fed’s bond-buying programs gum-up cash-flows at the nation’s biggest financial institutions, slowing down the real estate and business cycle, reducing future jobs growth.
Watching the Dow Jones Industrials rise from its bottom March 9, 2009 of 6,547 today’s inter-day high of 16,462 shows the enormous jump since President Barack Obama took office Jan. 20, 2009. Bernanke’s low interest rate policy and three rounds of quantitative easing helped propel the stock markets 150%, restoring the $7 trillion of lost market capitalization. Calling the U.S. jobs market disappointing, Yellen confirmed that the economy has a long way to go before offering the kinds of lost opportunities seen before the Great Recession. Fed’s statistics show too many in the labor market unable to replace their past full-time jobs, leaving them with part-time jobs without the job security or benefits. “Scars from the Great Recession remain, and reaching out goals will take time,” said Yellen, cautioning bond, CD or money market investors seeking higher yields anytime soon.
Bernanke hinted last year that his target for raising the federal funds rate was sometime in 2015. Yellen’s remarks suggest that that time frame could be pushed back indefinitely as the Fed tries to phase out its bond buying program. “The recovery still feels like a recession to many Americans, and it also looks that way in some economic statistics, referring to the current national unemployment rates that don’t factor in dropouts from the labor market. Yellen’s message is designed to keep Wall Street growing during 2014. Money has nowhere to go other than equities, still beating the pants off of bonds. Signaling that rates won’t go up for the foreseeable future helps traders set long horizons, confirming that Wall Street’s in what’s called a “secular” bull market. Even proverbial bear New York University Stern School economics professor Nouriel Roubini agrees.
For what’s left of bears still predicting a market crash or major correction, there’s simply no where for investors to go now that Yellen signaled low interest rates are here to stay. Most of the so-called Austrian economics’ zealots, like former GOP presidential candidate Rep. Ron Paul, won’t see the hyperinflation predicted by the Fed’s QE3 and historically low rates. Yellen’s Fed keeps close tabs on inflation not seen to rise much in the coming year. With the real estate still in recovery mode, the economy will continue its slow growth phase, expecting the nation’s Gross Domestic Product to rise about three percent in 2014. Still recovering from the foreclosure epidemic that drove down real estate prices, the American Assn. of Realtors expects a 5% rise in prices for 2014 nationwide. Expanding home prices are positively correlated with increased consumer spending.
Yellen showed that she’s chip off of Bernanke’s block, maintaining the liberal monetary policy that more than doubled the U.S. stock market for the last five years. With the Fed committed to tapering QE3, Yellen signaled that she won’t change the Fed’s monetary policy for the foreseeable future. “This is not just an academic debate,” said Yellen, citing cases of real people who “scrambled for odd jobs and temporary work” to make ends meet. While the GOP will surely use Yellen’s words to indict Obama’s economic track record, the Fed reads the tea leaves differently. Yellen’s main concern is helping the economy produce the kinds of full-time, long-lasting jobs that don’t leave the unemployed scrambling for piecemeal work. As long a Yellen sees a lack of quality jobs, she’ll continue to press the pedal to the metal when it comes to the Fed’s monetary policy.
About the Author
John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He’s editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.