On Monday morning at the National Association for Business Economists, Fed Vice Chair Janet Yellen presented a speech titled, “Challenges Confronting Monetary Policy.” In her opinion, the biggest challenge remains to lower the unemployment rate. She favors maintaining ultra-easy monetary policy for as long as it takes to bring the jobless rate down to 6.5%. And even then she would probably advocate maintaining the federal funds rate near zero, though she might be willing to terminate the Fed's purchasing of securities.
While Yellen’s speeches tend to be more dovish than Bernanke’s, they seem to share most of the same views. Since she joined the Fed she has given 19 speeches: two in 2010, ten in 2011, four in 2012, and three so far this year. Many of the ones since late 2011 boosted stock prices. In her latest speech, she made several extremely important points that are likely to drive monetary policy over the rest of this year and next year:
For starters she thinks that the official unemployment rate is too high and significantly understates the problem. She notes that while 12 million workers are currently counted as unemployed, an additional 8 million are working part time because they can’t find a full time job. She is also discouraged that there are 800,000 discouraged workers who have stopped looking for work. She notes that the official U-6 unemployment rate reflecting all these people is at 14.4%, nearly double the official rate of 7.9%.
In a 2/11 speech, Yellen said that ultra-easy monetary policy might remain in place even if the Fed’s unemployment “threshold” of 6.5% is achieved as long as inflation remains around 2%. I'm sure that in her mind 6.5% is still too high.
Today's Morning Briefing: Fairy Godmother. (1) The bull has a powerful friend. (2) Yellen thinks that even 6.5% is too high. (3) The wealth effect vs. asset bubbles. (4) Yellen wants more risk-taking as long as it is prudent! (5) CNBC Flash: Buffett says NZIRP is bullish for stocks. (6) US economy displays resilience. (7) Purchasing managers surveys upbeat for revenues outlook. (8) Consumers are taking recent hits in stride. (9) Construction upturn giving green light to light truck sales. (10) Joe reviews overweight-rated Financials. (More for subscribers.)