Janet Yellen: New View of Economic Health?

Don’t know if Heidi Moore at the Guardian, UK is blowing smoke, or if she’s even an economist but I thought her comments about US Federal Reserve Chair, Janet Yellen’s first presser were interesting. No others who have commented had such an interpretation.

“Wall Street is finally being forced to think for itself.

Today marked the first press conference for Janet Yellen, the first female chairman of the Federal Reserve.

… Yellen wiped away one lazy way of measuring the economy’s health. The Fed, under Bernanke, promised that when the unemployment rate hit 6.5%, the central bank would raise interest rates. This was called quantitative guidance, and it fed Wall Street’s fetish for largely made-up numbers. The 6.5% benchmark was a big hit with traders. It meant they didn’t have to think very hard: when unemployment hit 6.5%, Wall Street could start girding itself for a rise in interest rates.

Then Yellen shut down the betting parlor. In a statement, the Fed said it “will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. This is what is now called ‘qualitative guidance’”.

Translation: the Fed is looking at when the economy improves, and the economy comprises a giant number of measures and statistics. If Wall Street wants Cliffs Notes, it will have to look elsewhere.

… No longer will the Fed promise to raise interest rates at 6.5% unemployment. Instead, the Fed will raise interest rates when the economy is strong enough to justify it. Wall Street will just have to get over itself.

Yellen was clear that from now on, those market pundits are going to be forced to really think about where the economy is going, using a range of numbers, including how many people are dropping out of the workforce, how easy mortgages are to get, and whether regular people find it easy to borrow.

In her comments today, Yellen showed a sensitivity to the economy as real people experience it: mortgages that are hard to get, businesses that aren’t investing, “kids shacking up with their families”, people dropping out of the labor force because they can’t find jobs.

Read all Guardian: Moore

We won’t know for a while, of course, whether Yellen is actually setting out on a different road, or whether that road will lead to good results.  But since the human mind loves to speculate about everything from basketball tournament outcomes to where a missing airliner might be we might as well have a go at matters that actually affect us.