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. 

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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