Tag Archives: federal reserve

Fed Chair Yellen cites income gap among long-term risks

The U.S. economy is on solid ground now but it faces long-term risks posed by slow productivity growth and the widening income gap, Federal Reserve Chair Janet Yellen says.

Speaking recently to a gathering of teachers, Yellen said that she sees no major short-term risks facing the economy.

However, sputtering productivity growth and growing income inequality are serious long-term concerns.

The Fed chair said both challenges are outside the scope of the Federal Reserve to handle with its interest-rate tools, so it is important for other policymakers to address them.

She cited a recent study that included a “very shocking finding” — death rates in the 45-to-54 age group are actually rising.

Yellen said there appeared to be a link between this increase and higher rates of suicide and health issues related to substance abuse.

“The thought is that this is a reflection of greater economic insecurity,” Yellen said. “Obviously these are very disturbing trends.”

To promote the study of economics, Yellen held a national town hall meeting with teachers gathered at the Fed’s headquarters in Washington and in groups listening in at Fed regional banks around the country.

In prepared remarks, she said the study of economics can help students manage their personal finances and also provide them with the skills for analytical and critical thinking needed for success later in life.

“Economics provides knowledge and skills of practical use in college and in the workplace and it also provides skills to plan and make wise financial decisions,” Yellen said.

Asked in the question period how an introductory course on money and finance should be designed, she said she would make a number of changes to how she taught such a course many years ago, incorporating the lessons learned in dealing with the 2008 financial crisis, the worst since the 1930s.

She defended the bolstering of the safety and soundness of the financial system brought on by the Dodd-Frank Act that Congress passed in 2010 to prevent a future crisis. Republicans in Congress and President-elect Donald Trump have said they want to roll back some of the changes to make regulation less burdensome.

In her remarks, Yellen said that economics training can play an important role in improving the capabilities and creativity of the workforce.

“Everyone is engaged in and depends on the economy and nothing is more critical to a healthy and growing economy than the capability, creativity and productiveness of its workforce,” Yellen told the teachers. “Whenever I am asked what policies and initiatives could do the most to spur economic growth and raise living standards, improving education is at the top of my list.”

Yellen said that consumers, whose individual spending decisions account for two-thirds of economic activity, can better weather hard times if they have the proper training.

“Stronger household finances overall can help sustain growth, stabilize the economy and mitigate an economic downturn,” she said.

Yellen also put in a plug for what she called the most important teaching aid the Fed produces, a 182-page book called “The Federal Reserve System: Purposes and Functions.” She urged the teachers to check out the new 10th edition of this book on the Fed’s website.

Yellen to college grads: Best job market in nearly a decade

Federal Reserve Chair Janet Yellen said Monday that college graduates are entering the strongest job market the country has seen in nearly a decade, and their degree is more important than ever.

Yellen said that with changes in the job market such as technology and globalization, succeeding in the job market is increasingly tied to higher education.

“Those with a college degree are more likely to find a job, keep a job, have higher job satisfaction and earn a higher salary,” Yellen said in remarks at commencement ceremonies at the University of Baltimore.

She said that annual earnings for college graduates last year were on average 70 percent higher than those with only a high school diploma. Back in 1980 that difference was only 20 percent, she said.

Yellen said the increasing demand for people with college and graduate degrees reflected the need for higher technological skills and the impact of globalization, which allows goods and services to be produced anywhere. She said those trends were likely to continue.

“Success will continue to be tied to education, in part because a good education enhances one’s ability to adapt to a changing economy,” she said.

In her remarks, Yellen did not make any comments about Fed interest-rate policies. The Fed last week boosted its benchmark rate by a quarter-point. It was the first increase in a year. In making the announcement, the Fed projected that it would move rates up another three times in 2017.

Yellen said that in addition to the improvement in the unemployment rate, which in November fell to a nine-year low of 4.6 percent, there have been recent signs that wage growth is picking up.

But Yellen noted that challenges remain.

“The economy is growing more slowly than in past recoveries and productivity growth, which is a major influence on wages, has been disappointing,” she told the graduates.

Fact-checking Trump’s debate claims

Donald Trump’s habit of peddling hype and fabrication emerged unabated in the first presidential debate while Hillary Clinton played it cautiously in her statements, though not without error. A look at some of Trump’s claims in the debate and how they compare with the facts:

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TRUMP, denying Clinton’s accusation that he supported the Iraq war: “Wrong. Wrong.” Later: “That is a mainstream media nonsense put out by her. I was against the war in Iraq.”

THE FACTS: There is no evidence Trump expressed public opposition to the war before the U.S. invaded, despite his repeated insistence that he did. Rather, he offered lukewarm support. He only began to voice doubts about the conflict well after it began in March 2003.

His first known public comment on the topic came on Sept. 11, 2002, when he was asked whether he supported a potential Iraq invasion in an interview with radio host Howard Stern. “Yeah, I guess so,” Trump responded.

On March 21, 2003, just days after the invasion began, Trump said it “looks like a tremendous success from a military standpoint.”

Later that year he began voicing doubts.

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TRUMP, when Clinton accused him of calling climate change a hoax invented by the Chinese: “I did not say that.”

THE FACTS: Yes he did, in the form of a 2012 tweet: “The concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive.” He later claimed he was kidding, but he’s also repeated the claim that climate change is a hoax, and one that benefits China.

He tweeted in January 2014: “Snowing in Texas and Louisiana, record setting freezing temperatures throughout the country and beyond. Global warming is an expensive hoax!”

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TRUMP: “I’ve been under audit for almost 15 years.”

THE FACTS: Trump has never provided evidence to the public that he is actually under audit. A letter released by his tax attorneys never used the word, merely describing his tax returns under continuous examination. That is not a formal term for any kind of action by the Internal Revenue Service.

Trump has declined to provide the IRS’ formal notice of audit to The Associated Press and other news outlets. And former IRS officials have expressed skepticism that anyone would be audited so frequently. Trump cites an audit as the reason he won’t release his tax returns.

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TRUMP to Clinton: “You’ve been fighting ISIS your entire adult life.”

THE FACTS: Hillary Clinton was born in 1947 and is 68 years old. She reached adulthood in 1965. The Islamic State group grew out of an al-Qaida spinoff, al-Qaida in Iraq in 2013, the year Clinton left the State Department.

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TRUMP: “My father gave me a small loan in 1975.”

THE FACTS: Trump got a whole lot more than a small loan. Aside from $1 million in financing from his father, Trump received loan guarantees, bailouts and a drawdown from his future inheritance. Tim O’Brien noted in a 2005 book that Trump not only drew an additional $10 million from his future inheritance during hard times, but also inherited a share of his father’s real estate holdings, which were worth hundreds of millions when they were eventually sold off.

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TRUMP: “You don’t learn a lot from tax returns.”

THE FACTS: Americans stand to learn plenty if he releases his tax returns like other presidential candidates have done.

They would provide vital information about his wealth, taxes paid, tax avoidance efforts, exact amounts of real estate holdings and charitable donations that can’t be gleaned from any other source. For these reasons, every major party candidate for the last 40 years has released at least a few years of recent tax returns.

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TRUMP: “Our jobs are fleeing the country. They’re going to Mexico. They’re going to many other countries. … Ford is leaving, thousands of jobs leaving Michigan, leaving Ohio.” He added, “They’re leaving, and they’re leaving in bigger numbers than ever.”

THE FACTS: There are no official data on job flows between countries. However, the U.S. economy has added nearly 14.9 million jobs since 2010, when the economy bottomed out after the recession.

Since GM and Chrysler declared bankruptcy, the auto industry in particular has recovered and resumed hiring. The industry has added 300,000 jobs since June 2009, when the recession ended. Ford has announced it is moving production of small autos to Mexico, but the company maintains that it won’t cut any U.S. jobs because it will make other vehicles at the affected plant.

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TRUMP: President Barack Obama “has doubled (the national debt) in almost eight years. … When we have $20 trillion in debt, and our country is a mess.”

THE FACTS: Trump’s expressed concern about the national debt obscures that his own policies would increase it by much more than Clinton’s, according to the nonpartisan Committee for a Responsible Federal Budget.

Trump’s tax cuts would increase the deficit by $5.3 trillion over 10 years, the group found, while Clinton’s proposals would boost the deficit by $200 billion. Those increases are on top of an already-projected increase of about $9 trillion over the next decade, according to the Congressional Budget Office. By 2026, debt held by the public would total $23.3 trillion under Clinton’s plans, and $28.4 trillion under Trump.

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TRUMP: “A trade deficit of almost … $800 billion a year.”

THE FACTS: The trade deficit was actually $500 billion in 2015, certainly large but a lot lower than Trump’s figure. The deficit peaked at $761.7 billion in 2006, according to the Commerce Department.

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TRUMP: “Had we taken the oil (in Iraq) — and we should have taken the oil — ISIS would not have been able to form.”

THE FACTS: Donald Trump’s assertion that the U.S. should have seized Iraq’s natural resources would have required that it also seize control of the country and at no point was the U.S. in a position to do so.

To achieve Trump’s stated goal of destroying Islamic State militants’ revenue stream, the U.S. has bombed oil facilities in Iraq. The bombing was designed to render the oil facilities inoperable, but not destroy them, so Iraq could rebuild its economy with its oil when the conflict ended.

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TRUMP: “Russia’s been expanding. They have much newer capabilities than we do.”

THE FACTS: Russia has indeed been expanding its military and increasing spending on weapons and equipment. But the U.S. still has far more advanced military aircraft, weapons and capabilities than Russia. In addition, the Pentagon plans to spend $108 billion over the next five years to sustain and improve its nuclear force, and is developing the next generation bomber.

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TRUMP: “The Fed, by keeping interest rates at this level, the Fed is doing political things. … The Fed is being more political than Secretary Clinton.”

THE FACTS: This is a recurrent claim by Trump with no evidence to back it up. It’s the Federal Reserve’s job to help improve the economy and to the extent that happens, political leaders and their party may benefit. But presidents can’t make the Fed, an independent agency, do anything.

Under former chairman Ben Bernanke and current chairwoman Janet Yellen, the Fed has attracted controversy by pegging the short-term interest rate it controls to nearly zero for seven years. After one increase in December, it is still ultra-low at between 0.25 percent and 0.5 percent, a rate that some economists worry could spark a stock-market bubble or inflation. Bernanke was initially appointed by Republican President George W. Bush, and reappointed by President Barack Obama.

One reason Yellen is keeping rates low is that, in some ways, she agrees with Trump that hiring needs to keep growing to provide jobs for Americans who want them.

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TRUMP said a 1970s racial discrimination case against his real estate business was settled “with no admission of guilt” and that the case was “brought against many real estate developers.”

THE FACTS: The first claim is technically correct; the second is false.

Trump and his father fiercely fought a 1973 discrimination lawsuit brought by the Justice Department for their alleged refusal to rent apartments in predominantly white buildings to black tenants. Testimony showed that the applications filed by black apartment seekers were marked with a “C” for “colored.” A settlement that ended the lawsuit did not require the Trumps to acknowledge that discrimination had occurred. The government’s description of the settlement said Trump and his father had “failed and neglected” to comply with the Fair Housing Act.

Trump was wrong to say the suit was brought against many real estate developers _ it was specific to buildings rented by his father and him.

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TRUMP: “Stop-and-frisk had a tremendous impact on the safety of New York City. Tremendous beyond belief.”

THE FACTS: Trump is correct that the murder rate has plummeted in New York in the last two decades. But the same could be said for many other large American cities during the same period, and there’s certainly no way to credit stop-and-frisk for the decline.

Stop-and-frisk was a popular tactic for much of the last 15 years in the city. But even as it’s fallen out of favor under the administration of Mayor Bill de Blasio the murder rate remains a long way off from where it was in the 1990s, when it topped 2,000 a year. City police department statistics show there were 352 murders and non-negligent homicides in 2015, compared with 673 in 2000 and 539 in 2005.

By Associated Press writers Christopher S. Rugaber and Jeff Horwitz. AP writers Bradley Klapper, Eric Tucker, Stephen Braun, Jeff Horwitz, Jim Drinkard, Matthew Lee and Cal Woodward contributed to this report.

 

 

Yellen: Case for interest hike strengthened

The case for a U.S. interest rate hike has strengthened in recent months because of improvements in the labor market and expectations for solid economic growth, Federal Reserve Chair Janet Yellen said today.

Yellen did not indicate when the U.S. central bank might raise rates, but her comments reinforced the view that such a move could come later this year. The Fed has policy meetings scheduled in September, November and December.

Speaking at a three-day international gathering of central bankers and academics in Jackson Hole, Wyoming, Yellen said the “U.S. economy was nearing the Federal Reserve’s statutory goals of maximum employment and price stability.”

Data released earlier on Friday, however, showed the economy was more sluggish than initially thought in the second quarter, with gross domestic product expanding at a 1.1 percent annual rate. At the same time, consumer spending, which makes up more than two-thirds of economic activity, grew at the fastest rate since the fourth quarter of 2014.

Yellen pointed to a recent rebound in employment and said the Fed expects the economy to continue expanding.

“In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months,” Yellen said, adding that the Fed still thinks future rate increases should be “gradual.”

The Fed raised rates in December, its first hike in nearly a decade, but it has held off further increases so far this year due to a global growth slowdown, financial market volatility and generally tepid U.S. inflation data.

Yellen did not lay out a clear roadmap for what the Fed needs to see to raise rates. Investors have been doubtful about the central bank’s guidance, in part because its policymakers appear to be divided over whether to hike rates soon or take a more cautious approach.

“She’s just kept the door open for a hike sooner rather than later,” said Subadra Rajappa, an interest rate strategist at Societe Generale in Washington.

Prices for fed funds futures implied investors saw about even odds that the Fed will raise rates in December, largely unchanged from before Yellen’s remarks. Investors see much smaller chances of hikes in September or November.

The dollar jumped against the yen and euro on Yellen’s remarks before turning lower. U.S. stocks briefly pared gains, while prices of longer-dated U.S. Treasuries were trading higher.

Yellen noted that Fed officials have a wide range of views on where rates will likely be in the coming years. She said current forecasts imply a 70 percent probability they will be between 0 percent and 3.75 percent at the end of 2017, and a 70 percent probability they will be between 0 percent and 4.5 percent at the end of 2018.

Such uncertainty, she said, is inherent in the inability to predict economic shocks.

OTHER OPTIONS

Yellen was speaking at a Fed conference on designing new monetary policy frameworks, with central bankers eager to find new ways to stimulate economies even after they have cut rates to near zero and flooded banks with money.

She devoted much of her speech to outlining how the Fed may deal with future recessions now that many economists and Fed officials believe that an aging population and other dynamics appear to be slowing U.S. economic growth over the long term.

Because slower growth means future U.S. interest rates will likely also need to be lower on average, some analysts have suggested that the Fed will have less room to fight future recessions because there will be less room to cut rates.

Such a view is “exaggerated,” Yellen said, because the Fed will be able to use bond purchases and forward guidance to ease conditions. She said the Fed still planned in the future to wind down its massive balance sheet but that it would take time, adding that the balance sheet was likely to be useful for policy for some time.

The Fed may also want to explore other options, including broadening the range of assets it can purchase, raising the inflation target, or targeting nominal GDP, she said.

Reporting by Jason Lange and Ann Saphir; Additional reporting by Lindsay Dunsmuir in Washington; Editing by Paul Simao.