US economy appears fundamentally solid: Yellen
The Dollar Business Bureau
Federal Reserve Chair Janet Yellen on Monday stressed that despite a relatively weak GDP growth rate early this year, the US economy looks fundamentally solid.
“The economy has registered considerable progress over the past several years toward the Federal Reserve's goals of maximum employment and price stability, and there are good reasons to expect that we will advance further toward those goals,” Yellen said at the World Affairs Council in Philadelphia.
Listing out some of the positive facets of the current US economic scenarios, Yellen said the US’s overall labour market seems to be good, with rising household income, increasing customer spending, low energy prices, controlled inflation and signs of faster wage growth.
She underscored that the domestic demand continues to be the driving force of the US economy. “The US economy has performed better than many others around the globe, and that performance has relied chiefly on the resilience of domestic sources of demand, consumer spending in particular.”
Pointing out various global factors, including China’s economic uncertainty and Brexit, Yellen said China had been attempting to rebalance its economy, by shifting its focus from export-led growth to domestic demand-oriented growth; this factor coupled with low inflation, sluggish global growth and ultra-low interest rates could shift investors’ sentiment quickly.
“A particular worry is a negative reaction if British voters decide to leave the European Union in a June 23 vote,” she said.
Expressing concerns over the country’s too-low inflation, the Fed Chair said, “Oil prices have stopped falling, and the dollar has stopped rising — good signs for higher inflation. A price gauge favored by the Fed has shown inflation running below its 2% target for four years.”
When inflation is too low, it can have multiple effects on the economy. Weak inflation can depress spending, make loans more burdensome and hold back the country’s economic growth.
She, however, expressed confidence for an improved job market, accelerated wages and increased inflation in line with the Fed's target.
"I continue to believe that it will be appropriate to gradually reduce the degree of monetary policy accommodation, provided that labor market conditions strengthen further and inflation continues to make progress toward our 2% objective," Yellen said to the audience.