Skip to main content

Domestic reasons for Yellen to remain dovish


The last estimate of real GDP growth in the fourth quarter of 2015 indicates that the economy expanded at 1.4%. Not very fast. Also, this week the Bureau of Economic Analysis (BEA) announced that personal consumption expenditures (PCE) increased 0.1%, and revised down the January number to 0.1%. In other words, consumption is slowing down, or so it seems. More importantly, the report says: "The February PCE price index increased 1.0 percent from February a year ago. The February PCE price index, excluding food and energy, increased 1.7 percent from February a year ago." In other words, core inflation remains below the 2% target, and it has decelerated a bit, since in the previous report it was indicated that core inflation increased 1.3% on a yearly basis.

So there are good reasons for Janet Yellen to remain dovish, and suggest that interest rates will not increase significantly. Actually, there are good domestic reasons for that, even if she seems to emphasize the uncertain international economy.

PS: There is also the question of whether we are (or not; and we aren't) at full employment. But that's a topic for another post.

Comments

Popular posts from this blog

What is the 'Classical Dichotomy'?

A few brief comments on Brexit and the postmortem of the European Union

Another end of the world is possible
There will be a lot of postmortems for the European Union (EU) after Brexit. Many will suggest that this was a victory against the neoliberal policies of the European Union. See, for example, the first three paragraphs of Paul Mason's column here. And it is true, large contingents of working class people, that have suffered with 'free-market' economics, voted for leaving the union. The union, rightly or wrongly, has been seen as undemocratic and responsible for the economics woes of Europe.

The problem is that while it is true that the EU leaders have been part of the problem and have pursued the neoliberal policies within the framework of the union, sometimes with treaties like the Fiscal Compact, it is far from clear that Brexit and the possible demise of the union, if the fever spreads to France, Germany and other countries with their populations demanding their own referenda, will lead to the abandonment of neoliberal policies. Aust…

A brief note on Venezuela and the turn to the right in Latin America

So besides the coup in Brazil (which was all but confirmed by the last revelations, if you had any doubts), and the electoral victory of Macri in Argentina, the crisis in Venezuela is reaching a critical level, and it would not be surprising if the Maduro administration is recalled, even though right now the referendum is not scheduled yet.

The economy in Venezuela has collapsed (GDP has fallen by about 14% or so in the last two years), inflation has accelerated (to three digit levels; 450% or so according to the IMF), there are shortages of essential goods, recurrent energy blackouts, and all of these aggravated by persistent violence. Contrary to what the press suggests, these events are not new or specific to left of center governments. Similar events occurred in the late 1980s, in the infamous Caracazo, when the fall in oil prices caused an external crisis, inflation, and food shortages, which eventually, after the announcement of a neoliberal economic package that included the i…