Yellen: U.S. economy looks strong in short-term
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Yellen: U.S. economy looks strong in short-term

Federal Reserve (FED) chairperson Janet Yellen said last week that the U.S. economy looks good in the short-term. However, while there are no immediate obstacles on the horizon, Yellen did caution that the country needed to find solutions for longer-term problems like low productivity and rising inequality. She said: “Unemployment has now reached a low level, the labor market is generally strong and wage growth is beginning to pick up. Inflation has moved up from a very low level, and it’s a little bit under our 2 percent objective, but it’s pretty close.”

Jobless rate has fallen

SOURCE: Bloomberg

Unemployment rose from 4.6% in November (its lowest level since 2007) to 4.7% in December. Inflation – according to the FED’s preferred gauge, which ignores food and energy components – stood at 1.6% through the 12 months that ended in November.

However, against these positive notes, Yellen warned that productivity – a “key determinant” of living standards in the long term – was lagging at inexplicable, and historically low, levels. A second concern that she feels requires serious attention is the increase in inequality, as better-educated workers take home a proportionately larger piece of the pie.

In reference to the incoming administration’s suggestion of financial deregulation, Yellen mentioned banking regulation reforms that were put into effect following the financial crisis: “these are very important changes. I certainly wouldn’t want to see them rolled back.”

Last month marked the FED’s first increase in interest rates for a year. After indicating that near-term risks “appear roughly balanced” the expectation is for three hikes this year. 

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The opinions in this article do not reflect those of Dominion Fund Management Limited, and in the instance of any forward-looking statements, these should not be construed as advice.



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