Courtesy of Pam Martens.
Janet Yellen, Chair of the Federal Reserve Board of Governors
The new Chair of the Federal Reserve Board, Janet Yellen, is one of the most seasoned and knowledgeable central bank chiefs in the 100-year history of the Fed. But there was one sentence in Yellen’s testimony on Tuesday before the U.S. House Financial Services Committee which is alarming. Yellen told the Congressional panel:
“Inflation remained low as the economy picked up strength, with both the headline and core personal consumption expenditures, or PCE, price indexes rising only about 1 percent last year, well below the FOMC’s 2 percent objective for inflation over the longer run.”
A strong economy is incompatible with declining inflation. One or the other will win out. In a consumer based economy such as the United States, where personal consumption represents 70 percent of GDP, preventing deflation from getting a foothold is prominently on the Fed Chair’s radar screen, whether it is acknowledged or not.
Yellen’s greatest enemy to succeeding in her job may be her inundation with the vast quantities of economic research spewed out by her employer and its 12 regional banks. Unfortunately, much of that research takes the pulse of the economy in the rearview mirror rather than in real time. During rapid and volatile economic currents, Yellen would be well advised to start listening carefully to real-time reports coming from CEOs, CFOs, Purchasing Managers and real business owners across America.
Yellen should be paying close attention to see if the following phrases emerge from the above group: “sharp slowdown,” “unanticipated contraction in sales,” “weakness we did not foresee coming,” and “abrupt.”
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