President Harry Truman apparently once quipped, ‘give me a one-handed economist’ because his advisors would start by saying, ‘on the one hand’ and then begin their concluding remarks a few minutes later with, ‘on the other hand…’
In that sense, Janet Yellen’s speech on Friday was two-handed with a little something for everyone, saying both that the labor market is still suffering from the 2008-2009 recession and that interest rates hikes might start a little sooner than expected.
If investors simply look at the unemployment rate, which is currently 6.2 percent, they might conclude that the labor market doesn’t need further stimulus from the Federal Reserve in the form of lower interest rates.
If you look at some of the internal measures, like the long-term unemployment rate, the number of people that are employed part time that want to work full time, weekly earnings or simply the overall labor participation rate, the unemployment situation doesn’t look as good.
At the same time, Janet Yellen knows that other Fed members are eager to get going on interest rate hikes.
Our own St. Louis Fed President, James Bullard said in a Friday television interview, ‘I’m sticking right now to the end of the first quarter on lift off,’ referring to the timing of the first hikes.
On Thursday, Philadelphia Fed President Charles Plosser said that the current zero-interest rate policy was increasingly risky. On CNBC, he said, ‘If the Fed gets this wrong here, I mean if [rates increases are] off by six months or a year, is there real danger to the economy? There could be.’
Given the increasing tension between the hawks and the doves about when exactly to raise rates (and still claim to be data dependent), it makes sense that Yellen would provide a nod to the hawks.
There’s a little bit of irony here – Fed Chairs are supposed to pour ice on the economy when it starts to overheat and a lot of critics charge that Greenspan failed to do this at the end of his tenure.
The Twitter-sphere was abuzz with snarky comments as such, but I want to know why his wife, Andrea Mitchell of NBC news, didn’t respond in kind.