Yellen Worried About Employment, Non-Committal on Rates

The Federal Reserve has long been adept at maintaining a poker face, and Chair Janet Yellen seems to be carrying on the practice.

The Federal Reserve has long been adept at maintaining a poker face, and Chair Janet Yellen seems to be carrying on the practice. Economists, investors and other observers watched on Friday for hints about interest rate changes in Yellen’s speech at the powwow of central bankers in Jackson Hole. She didn’t oblige, though she does still seem skeptical that U.S. employment has improved enough yet to suit the Fed: “The decline in the unemployment rate over this period somewhat overstates the improvement in overall labor market conditions,” Yellen notes.

The chair continues: “With the economy getting closer to our objectives, the FOMC’s emphasis is naturally shifting to questions about the degree of remaining slack, how quickly that slack is likely to be taken up, and thereby to the question of under what conditions we should begin dialing back our extraordinary accommodation.” That is, when is the Fed going to start unloading all the Treasuries and MBS on its balance sheet, and when is it going to do more than think about raising low interest rates?

Her answer was noncommittal: “As should be evident from my remarks so far, I believe that our assessments of the degree of slack must be based on a wide range of variables and will require difficult judgments about the cyclical and structural influences in the labor market.” We’re still thinking, in other words.

She does (essentially) say that worries about inflation aren’t going to be the main driver of Fed policy. “Profound dislocations in the labor market in recent years—such as depressed participation associated with worker discouragement and a still-substantial level of long-term unemployment—may cause inflation pressures to arise earlier than usual as the degree of slack in the labor market declines,” Yellen explains. “However, some of the resulting wage and price pressures could subsequently ease as higher real wages draw workers back into the labor force and lower long-term unemployment. As a consequence, tightening monetary policy as soon as inflation moves back toward 2 percent might, in this case, prevent labor markets from recovering fully and so would not be consistent with the dual mandate.”

More Americans traveling for Labor Day

AAA is predicting that 34.7 million Americans will travel 50 miles or more from home during the Labor Day holiday weekend, the highest volume for the holiday since 2008, and a 1.3 percent increase over 2013. Nearly 86 percent of travelers (29.7 million) will take a road trip during the period between Thursday, Aug. 28 and Monday, Sept. 1.

The organization is also predicting that hotel costs and air travel will be up. Gasoline prices, on the other hand, have been dropping lately and probably won’t spike back upward for the holiday. As of Sunday, AAA puts the average U.S. price for a gallon of regular gas at $3.437. A month ago, the average was $3.55 a gallon, and a year ago, it was $3.541.

“This year, Americans are more optimistic about their financial situation,” AAA Chicago spokeswoman Beth Mosher notes. “Consumer spending continues to outpace disposable income, indicating that Americans are comfortable using their credit cards to take one last summer vacation this year.”

Wall Street gyrated around on Friday as investors watched the news out of Wyoming, and ended the day mixed. The Dow Jones Industrial Average lost 38.27 points, or 0.22 percent, and the S&P 500 was off 0.2 percent. Tech stocks did better, with the Nasdaq up 0.14 percent.