Federal Reserve Chairwoman Janet Yellen made her semiannual report to the Senate Banking, Housing, and Urban Affairs Committee in a hearing Tuesday. For the most part her report was optimistic, focusing on the positive signs in the job market and going carefully over both the advantages and disadvantages to low oil prices, while also outlining some less than ideal news on the inflation rate.
However the concentration for many, including Senator Sherrod Brown (D-Ohio), is on how most Americans are fairing under the current conditions — specifically when it comes to wages. This appears to be the consistent theme for the foreseeable future: The economy is improving, but Americans aren’t feeling it. Some variation of this has come out of the mouths of politicians from both sides of the aisle at least once over the course of the last month or two. Senator Brown spoke on this topic in his opening statement of the hearing, saying:
We know the improvements in the economy are not being felt by enough Americans. The gains we’ve made in the past five years — 11.5 net private sector job growth — the last five years come on the heels of nine years when we lost 4.5 million jobs. Some pundits/politicians have been predicting runaway inflation for years. They clearly don’t have a very good grasp of what is happening for most Americas. Low wage growth has continued for a majority of Americans, declining participation in the workforce is troubling, in fact as you pointed out Madam Chair, the income inequality gap has actually widened during this recovery.
Yellen herself admitted low inflation is a concern. “U.S. inflation continues to run below the Committee’s 2 percent objective,” she said in her report, but points to oil price drops as an explanation, the major double-edged economic sword so far this year. “In large part, the recent softness in the all-items measure of inflation for personal consumption expenditures (PCE) reflects the drop in oil prices.”
She goes on to say that “the Committee expects inflation to decline further in the near term before rising gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate.”
Yellen explains the price fall as due to increased supplies worldwide rather than a reduction in demand, and admits that the energy industry will probably be hurt in the short term as a result, with likely job losses. What this means is that a narrow group of American workers and families will be adversely affected, but she states that it will “likely be a significant overall plus, on net, for our economy.”
However those lost jobs make for a convenient argument when it comes to Keystone XL’s potential energy industry job creation. Chairman of the Senate Banking Committee Richard Shelby was among many tweeting on the job opportunity loss from Obama’s rejection of the Keystone XL pipeline bill. “President Obama blocked the creation of tens of thousands of new American jobs by vetoing the #KeystoneXL bill today,” he tweeted.
So the current economy is a cloudy sky, but one expected to clear given active policy. It’s not that the sun isn’t high in the sky, and it’s not that the temperature is overly chilly — the issue is that many Americans can’t see the sun. Yellen’s prescription? She suggests that normalization of policy — pulling back on increasing the goal for federal funds rate — will need to go slow while the Federal Reserve works to manipulate inflation where it needs to go with time, and stabilize market and employment factors.
This could take till sometime near the end of 2016, by her estimates, a bit later than some in the marketplace had been expecting. This indication that interest rates would not be driven up just yet was responded to by a slight increase in the global stock markets on Wednesday, according to Reuters. “I would term what she did yesterday as somewhat ‘jawbone therapy,'” said Keith Bliss, senior vice-president with Cuttone & Co. to Reuters. “She knows the market is listening to every word and she is being just noncommittal enough.” And, indeed, she was positive but not overly so, with the overall forecast optimistic, leaving the ever-constant a matter of getting politicians to agree on how best to direct the U.S. uphill in ways that can be widely felt in other hands.
More from Politics Cheat Sheet:
- Are Offshore Oil Drilling Plans a Different Evil Than Keystone?
- How Obama Could Turn the Keystone Debate to His Advantage
- How Wall Street’s Short-Term Thinking Hinders Economic Progress
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