Federal Reserve System

Fed’s Janet Yellen Says the Economy Remains in Good Health

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Ms. Yellen said the prospect of tax cuts or other changes in domestic fiscal policy has not influenced the Fed’s monetary policy plans at this point. “We’re uncertain about the size, timing and composition of changes that will actually be put into effect,” she said.

She said anticipation of changes like tax cuts has buoyed measures of consumer and business confidence, but there is little evidence so far of increased investment. She said the Fed similarly is taking “a kind of wait-and-see attitude.”

Ms. Yellen’s term as Fed chairwoman ends in early February. President Trump has said he is considering whether to appoint her to a second four-year term.

The American economy added an average of 171,000 jobs per month during the first eight months of the year, a little lower than the monthly average of 187,000 in 2016, but well above the growth of the working-age population.

Reported employment shrank in September for the first time in seven years, but that is most likely the result of Hurricane Irma, which hit Florida while the government was conducting its monthly survey.

Ms. Yellen said the damage from recent storms, while “terrible,” was unlikely to leave a lasting imprint on the economy.

“History suggests that the longer-term effects will be modest and that aggregate economic activity will recover quickly,” she said.

Other vital signs also are looking strong. The unemployment rate stands at 4.2 percent, and labor force participation has stabilized. While wage growth remains weak by historical standards, Ms. Yellen said, that was mostly the result of slow growth in productivity.

“The pace seems broadly consistent with a tightening labor market once we account for the disappointing productivity growth in recent years,” she said.

Ms. Yellen also noted that domestic business investment has improved and stronger growth in other countries has increased demand for American exports.

“I perceive that risks to global growth have receded somewhat and expect growth to continue to improve over the near term,” she said.

The most obvious cause for concern is the weakness of inflation, which has remained below the Fed’s 2 percent annual target since the financial crisis. Other developed nations are grappling with the same phenomenon.

“The apparent disconnect between strong economic activity, on the one hand, and low inflation and wages on the other, is one of the standout characteristics of the ongoing recovery, almost everywhere,” said Vitor Constancio, vice president of the European Central Bank, who spoke on the same panel as Ms. Yellen.

Some Fed officials regard weak inflation as evidence the Fed should retreat more slowly from its stimulus campaign.

Ms. Yellen reiterated on Sunday that she did not agree, because she regarded inflation as likely to increase as growth continued.

“My best guess is that these soft readings will not persist,” she said.

She added that she saw little evidence soft inflation in the United States is the result of a change in the global economy.

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Wendy Pettit

Wendy Pettit is a writer for NYT and writes for other publications on her spare time. She lives in Chicago with her husband and her dog Zuko.

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