Federal Reserve Chair Janet Yellen said she’s confident in the outlook for economic growth and warned that waiting too long to end the era of near-zero interest rates could force the central bank to tighten too quickly, which would risk disrupting financial markets and the six-year expansion.
“Were the FOMC to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals,” Yellen told the Economic Club of Washington on Wednesday. “Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession.”
Her comments are the latest sign that the policy-setting Federal Open Market Committee is poised to raise interest rates for the first time since 2006 at its Dec. 15-16 meeting in Washington. Fed officials have been trying to gauge whether the economy is headed toward their goals and can sustain growth as rates increase.
“On balance, economic and financial information received since our October meeting has been consistent with our expectations of continued improvement in the labor market,” Yellen said Wednesday. That “helps strengthen confidence that inflation will move back to our 2 percent objective over the medium term.”
Yellen emphasized that policy makers will receive a range of data on the labor market, inflation and economic activity between now and the December meeting that will influence their decision.
‘Mind Is Set’
Even so, “you come away thinking that her mind is set on a rate hike in December,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities LLC in New York. “We got the sense from her that what she’s seen so far is that the economy can handle that initial rate hike.”
The Fed’s Beige Book economic survey, released later Wednesday, showed a “modest” pace of expansion across most of the U.S. in October and November amid rising consumer spending. Pay gains were described as “generally stable to increasing,” with most districts saying wage pressures were only building for skilled workers and employees in short supply.
The yield on 10-year Treasury notes climbed from a one-month low and the dollar hovered near the highest in more than a decade as investors reacted to Yellen’s remarks, which also pointed to recent improvements in the labor market and wages as positive signs.
“We have seen a welcome pickup in the growth rate of average hourly earnings for all employees and of compensation per hour in the business sector,” she said. “While it is too soon to conclude whether these more rapid rates of increase will continue, a sustained pickup would likely signal a diminution of labor market slack.”
U.S. employers added 271,000 jobs in October, the most this year, and unemployment has dipped to 5 percent, half of its 2009 peak. The Labor Department’s gauge of average hourly earnings has shown early signs of picking up, with 2.5 percent year-over-year growth in October, the highest since 2009. The final employment report before the December meeting is scheduled for release on Friday in Washington.
Inflation remains subdued, though, and the Fed’s preferred gauge hasn’t hit policy makers’ 2 percent goal since 2012. Yellen signaled confidence that price pressures may be moving up, referencing core inflation rather than the headline index the Fed prefers.
“It appears that the underlying rate of inflation in the United States has been running in the vicinity of 1-1/2 to 1-3/4 percent,” Yellen said, once the core data are adjusted for downward pressure from low oil prices and a stronger dollar. She noted that policy makers are paying close attention to indicators of inflation expectations, some of which have shown deterioration recently.
The initial rate liftoff is expected to be small, just 25 basis points, and Fed speakers including Yellen have emphasized that the pace of tightening going forward is more important than the timing.
“The Committee anticipates that even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run,” Yellen said Wednesday.
Yellen said the neutral interest rate — the one that neither stokes nor slows the economy — seems to have declined in the wake of the financial crisis, and its future path is uncertain. That could have implications for the pace of increases and ultimate level of the central bank’s main interest rate.
“If the Fed now thinks, as Yellen illustrated today and as the October FOMC minutes indicated, that the neutral real rate is close to zero, there is no way in the world the Fed will get even remotely close to 3.5 percent in this cycle,” Roberto Perli, a former Fed official who’s now a partner at Cornerstone Macro LLC in Washington, wrote in a note to clients. That number, 3.5 percent, is the median longer-run projection for the rate that Fed officials submitted in September.
Yellen sounded optimistic on the international outlook, saying China, which has seen growth slow this year, has taken actions to stimulate its economy and noting that other emerging-market economies are also easing monetary and fiscal policy. She said activity in those places has improved, and accommodative policy in advanced economies is also helping to support growth.
“A pickup in demand in many advanced economies and a stabilization in commodity prices should, in turn, boost the growth prospects of emerging market economies,” Yellen said.
Yellen will have another chance to elaborate on her outlook in testimony Thursday before Congress’s Joint Economic Committee.
COVID-19: CBN Has Disbursed N83B Loans to Healthcare Sector
The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, yesterday, said the central bank had disbursed over N83.9 billion to pharmaceutical and healthcare practitioners in the country since the outbreak of the COVID-19 pandemic in the country.
Also, Lagos State Governor, Mr. Babajide Sanwo-Olu, has stressed the need for a slash in the cost of governance in the country, saying a lot more resources could be dedicated towards healthcare and critical infrastructure.
They both said this yesterday, at the premiere of ‘Unmasked’, a documentary on Nigeria’s response to the pandemic held in Lagos.
Emefiele, who was represented by the CBN’s Director of Corporate Communications, Osita Nwasinobi, explained: “Building a robust healthcare infrastructure was also vital from a security perspective, as some nations had imposed restrictions on the exports of vital medical drugs as well as the use of drug patents that could aid in containing the spread of the pandemic.
“As a result, we focused our interventions in the healthcare sector on three areas. Building the capacity of our healthcare institutions supporting the domestic manufacturing of drugs by businesses, and providing grants to researchers in the medical field, in order to encourage them to develop breakthrough innovations that would address health challenges faced by Nigerians.
“In this regard, we disbursed over N83.9 billion in loans to pharmaceutical companies and healthcare practitioners, which is supporting 26 pharmaceutical and 56 medical projects across the country. We were also able to mobilise key stakeholders in the Nigerian economy through the CACOVID alliance, which led to the provision of over N25 billion in relief materials to affected households, and the set-up of 39 isolation centres across the country. These measures helped to expand and strengthen the capacity of our healthcare institutions to respond to the COVID-19 pandemic.”
According to the CBN Governor, the banking sector regulator also initiated the Healthcare Sector Research and Development Intervention Grant Scheme, which was to aid research on solutions that could address diseases such as COVID-19, and other communicable/non-communicable diseases.
He said so far, five major healthcare-related research projects were being financed under the initiative.
Speaking further on the call to increase access to health insurance, Emefiele said: “One key aspect which we would have to address is improving access to healthcare for all Nigerians. A key factor that has impeded access to healthcare for Nigerians is the prevailing cost of healthcare services.
“According to a study by World Health Organisation (WHO), only four percent of Nigerians have access to health insurance. Besides food, healthcare expenses are a significant component of average Nigeria’s personal expenditure.
“Out of pocket expenses on healthcare amount to close to 76 percent of total healthcare expenditure. At such levels of health spending, individuals particularly those in rural communities may be denied access to healthcare services.
“Expanding the insurance net to capture the pool of Nigerians not covered by existing health insurance schemes, could help to reduce the high out of pocket expenses on healthcare services by Nigerians. It will also help to increase the pool of funds that could be invested in building our healthcare infrastructure and in improving the existing welfare package of our healthcare workers.”
“The private sector has a significant role to play in this regard given the decline in government revenues as occasioned by the drop in commodity prices. Leveraging innovative solutions that can provide insurance services at relatively cheap prices could significantly help to improve access to healthcare for a large proportion of Nigerians particularly those in our rural communities.”
According to Emefiele, the CBN remains committed to working with all stakeholders in improving access to finance and credit that would support the development of viable healthcare infrastructure in our country.
On his part, Sanwo-Olu said: “What are the lessons that we have learned with the Covid-19? Looking at all the things that Covid-19 has cost us, how are we preparing ourselves?
“The truth be told the structure of our governance system needs to change particularly the cost of governance. We need to speak up and ask ourselves are we ready to change.”
“When it gets to the election it is the same set of people that will come up and people don’t come out to vote and we end up having 20 percent out of 100 percent that will elect those that will govern. So, the change has to be about all of us. That is how the real change that will help us will come,” he added.
Emefiele Says CBN Will Resist All Attempts to Continue Maize Importation
The Central Bank of Nigeria (CBN) has vowed to resist all attempts to continue the importation of maize into the country.
Godwin Emefiele, the governor, CBN, in a statement titled ‘Emefiele woos youths to embrace agriculture’, said: “the CBN would resist attempts by those who seek to continually import maize into the country.”
Emefiele, who spoke in Katsina during the unveiling of the first maize pyramid and inauguration of the 2021 maize wet season farming under the CBN-Maize Association of Nigeria Anchor Borrowers’ Programme, said maize farmers in the country had what it takes to meet the maize demand gap of over 4.5 million metric tonnes in the country.
“With over 50,000 bags of maize available on this ground, and others aggregated across the country, maize farmers are sending a resounding message that we can grow enough maize to meet the country’s demand,” Emefiele said.
He explained that the maize unveiled at the ceremony would be sold to reputable feed processors.
He added that this would in turn impact positively on current poultry feed prices, as over 60 per cent of maize produced in the country were used for producing poultry feed.
Nigeria’s Spending Structure Unsustainable, Budget Head Says
Nigeria’s current trend of spending more money on running the government than on building new infrastructure is unsustainable, the country’s top budget oversight official said.
Low revenue collection and high recurrent costs have resulted in actual capital expenditure below two trillion naira ($4.88 billion) a year for a decade, Ben Akabueze, director-general of the Budget Office, said Tuesday in a virtual presentation.
“Hence, the investments required to bridge the infrastructure gap are way beyond the means available to the government,” Akabueze said. Recurrent spending, allocated towards salaries and running costs, has accounted for more than 75% of the public budget every year since 2011, he said.
Africa’s largest economy requires at least $3 trillion of spending over the next 30 years to close its infrastructure gap, Moody’s Investors Service said in November. The country’s tax revenue as a proportion of gross domestic product is one of the lowest globally, according to the International Monetary Fund.
“Huge recurrent expenditure has constrained the provision of good roads, steady power supply, health care services, quality education and quality shelter,” Akabueze said.
Nigeria should amend its constitution to create six regions to replace the existing 36 states, which each have their own governments, Akabueze said. The country also needs to reduce the number of cabinet ministers to a maximum of 24 from more than 40 and cut federal ministries to fewer than 20 from the current 27, he said.
“No country can develop where a large part of its earnings is spent on administrative structures rather than on capital investment,” Akabueze said.
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