Janet Yellen 15th Chair of the Federal Reserve
Fewer Jobs, Strong
Dollar Put Yellen in an Awkward Corner
by Peter Morici 8 May 2015
The economy added
223,000 jobs in April—well below the 260,000 averaged during 2014—pitching cold
water on forecasts of stronger economic growth this spring and complicating Fed
plans to raise interest rates.
Unemployment was 5.4 percent, largely because so many prime
working age adults are still not employed or looking for work.
The Commerce Department
initially estimated first quarter growth at 0.2 percent but subsequently
reported a much larger than anticipated March trade deficit. Consequently,
first quarter growth will likely be revised down to -0.2 percent, and
economists are lowering growth forecasts for the balance of 2015.
The oil and gas sector—a major driver of the economic
recovery—has cut investment and jobs, and the ripple effects for supporting
industries and communities have been pronounced. Consumers have been so far
reluctant to spend much of the boost in their buying power from lower gasoline
prices; hence the net effects from lower oil and fuel prices have not proven
the boom to the economy that policymakers anticipated.
The strong dollar is a key factor behind the surging trade
deficit—it makes imports from China and South Korea cheaper and U.S. exports
competing with Japanese and German products more expensive. Without relief from
an excessively strong dollar—made possible by Asian and European monetary
policies targeting dollar exchange rates—resurrecting U.S. growth and decent jobs
creation are nearly impossible.
The Federal Reserve would
like to raise interest rates, because prolonged periods of rock bottom rates
impose distortions on the deployment of capital in the economy. For example,
savers and investors are driven to risky junk bonds to find adequate returns,
and cheap loans empower traders and dealmakers on Wall Street whose influences
on economic growth are akin to the contribution of processed sugar to the
healthfulness of the American diet.
Also, inflation is picking up. Anecdotal reports of
employers such as Aetna, Hobby Lobby, and GAP increasing wages are now
confirmed by the Labor Department’s closely
watched Employment Cost Index. Core inflation—consumer prices net of volatile
energy and food prices—have firmed in recent months and are approaching the
Fed’s target of 2 percent a year.
Raising interest rates could push up the dollar—further
increasing imports and handicapping U.S. exports.
Without any change in Fed interest rate policy, the economy
is likely to grow about 2.3 to 2.7 percent the balance of this year, and that
won’t be enough to raise jobs creation to 2014 levels.
The sixty four dollar question becomes will the Fed impose
another hit on U.S. businesses competing in global markets by nudging up interest
rates and the dollar against Asian and European currencies, and be satisfied
with an even more disappointing pace of jobs creation.
One theory is that slower jobs creation is inevitable,
because so many adults who have left the labor force —especially the 7 million
idle men between ages 25 and 54—are permanently out. Receiving subsidies for
health care, food stamps, and other government benefits that phase out as
family incomes rise, it simply takes a much higher wage than many jobs now
pay—or would pay with a higher minimum wage—to coax many adults into working.
Without exchange rate reform—international disciplines
embodied in trade agreements that combat predatory monetary policies—and
entitlement reform, the Fed could push interest rates into negative territory
without instigating more growth and jobs creation. But without higher rates,
cheap credit makes it the exchequer to the gamblers on Wall Street.
Ultimately, tough rules for currency manipulation in
international trade agreements and entitlement reform—two items President Obama vehemently opposes—are necessary for the Fed to
be effective.
Unfortunately, Yellen would rather publicly comment on the
dangers of income inequality and stay silent on the dollar than challenge her
patron in the Oval Office with the requirements of good economic policy.
Yellen
Janet
L. Yellen is the chair for the Federal
Reserve Board, a member of the Federal
Open Market Committee, married to George
A. Akerlof, and a professor emeritus at the University of California, Berkeley.
Note: Ben S. Bernanke
was the chairman for the Federal Reserve
Board, the chairman for the Federal
Open Market Committee, and is a distinguished fellow at the Brookings Institution (think tank).
Foundation
to Promote Open Society was a funder for the Brookings Institution (think
tank).
George Soros
was the chairman for the Foundation to Promote Open Society.
Cyrus F.
Freidheim Jr. is an honorary trustee at the Brookings Institution (think tank), and a member of the Commercial Club of Chicago.
Penny S. Pritzker
is a member of the Commercial Club of
Chicago, the secretary at the U.S.
Department of Commerce for the Barack Obama administration, was the
national finance chair, fundraiser for the 2008
Barack Obama presidential campaign, a co-chair for the 2009 Barack Obama inaugural committee, a fundraiser, national
co-chair for the 2012 Barack Obama
presidential campaign, a contributor for the 2013 Barack Obama inaugural committee, the host for the Barack Obama fund-raising dinner, 7/2/2008,
a member of the President's Council on
Jobs and Competitiveness, and Craig
M. Robinson’s basketball coach for the children's team.
Sheryl K.
Sandberg was a member of the President's
Council on Jobs and Competitiveness, and a member of the Brookings Institution (think tank).
Laura D'Andrea
Tyson a member of the President's
Council on Jobs and Competitiveness, and a member of the Brookings Institution (think tank).
David
H. Romer is a senior fellow at the Brookings
Institution (think tank), a professor at the University of California,
Berkeley, married to Christina D. Romer,
and was a co-director, program in monetary economics for the National Bureau of Economic Research.
Christina D.
Romer is married to David H. Romer,
a professor at the University of
California, Berkeley, was a
co-director, program in monetary economics for the National Bureau of Economic Research, and a council of economic
advisers chairman for the Barack Obama
administration.
George
A. Akerlof is a professor at the University
of California, Berkeley, a
director at the National Bureau of
Economic Research, and married to Janet
L. Yellen.
Janet
L. Yellen is married to George A. Akerlof, a professor emeritus
at the University of California, Berkeley, the chair for the Federal Reserve Board, and a member of
the Federal Open Market Committee.
Michelle
Obama is Craig M. Robinson’s sister,
and was a lawyer at Sidley Austin LLP.
Barack
Obama was an intern at Sidley Austin
LLP.
R.
Eden Martin is counsel at Sidley
Austin LLP, and the president of the Commercial
Club of Chicago.
Commercial Club of
Chicago, Members Directory A-Z (Past Research)
Tuesday, December 17, 2013
Newton N. Minow
is a member of the Commercial Club of
Chicago, and a senior counsel at Sidley
Austin LLP.
Kathryn B.
Thomson was a partner at Sidley
Austin LLP, and is married to Christopher
P. Lu.
Christopher P. Lu
was a litigation associate at Sidley
Austin LLP, the White House cabinet secretary for the Barack Obama administration, an executive director for the 2008 Obama-Biden transition team, a legislative
director for Barack Obama, is
married to Kathryn B. Thomson, and
the deputy secretary for the U.S.
Department of Labor.
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