Markets

Yellen Sees ‘Plausible Ways’ Hot Economy Could Heal Growth

Published

8 years ago

October 14, 2016

Yellen Sees ‘Plausible Ways’ Hot Economy Could Heal Growth

Federal Reserve Chair Janet Yellen said there are “plausible ways” that running the U.S. economy hot for a while could fix some of the damage caused to growth trends by the Great Recession.

“Increased business sales would almost certainly raise the productive capacity of the economy by encouraging additional capital spending,” Yellen said Friday in the text of a speech to a Boston Fed conference on the elusive economic recovery. “A tight labor market might draw in potential workers who would otherwise sit on the sidelines.”

The economic recovery which began in the middle of 2009 has proceeded at sluggish pace. It took more than six years to drive the unemployment rate close to Fed officials’ definition of full employment. Inflation has remained below the Fed’s 2 percent target since 2012, and wages haven’t grown as fast as in previous expansions. Economists at the Boston Fed conference examined the sources and definitions of the slow recovery, with some arguing that demographic trends that were already in place before the recession are driving a substantial portion of it.

Yellen pondered whether a “high-pressure economy” could reverse some of the damage done in the recession, including declines in research spending and labor force participation. In effect, that has been the Federal Open Market Committee’s bet this year, though Yellen cautioned that running a low-rate policy for too long “could have costs that exceed the benefits” by increasing financial risk or inflation.

Still, Yellen said, “the influence of labor market conditions on inflation in recent years seems to be weaker than had been commonly thought prior to the financial crisis.”

She noted that inflation fell during the recession but said the decline was “quite modest” given how high unemployment rose. “Likewise, wages and prices rose comparatively little as the labor market gradually recovered.”

Yellen also used her remarks to prominent monetary economists to pose a list of questions that she said required new research.

These included the somewhat unorthodox idea that changes in demand might have a persistent impact on supply, and why the influence of labor market conditions on inflation has weakened in recent years and whether that was caused by the Great Recession. She also asked how policy makers can reduce the frequency and severity of future crises by understanding better the connections between the financial sector and the broad economy.

Fed officials have maintained exceptionally easy monetary policy. They cut rates to near-zero in late 2008 and have since raised them only once, in December, leaving policy on hold so far this year as they sought to shield the U.S. expansion from headwinds abroad. Despite the shocks, Yellen has maintained her focus on labor market slack, arguing that there were still more gains to be made despite the low unemployment rate.

However, minutes from the Sept. 20-21 meeting of the Federal Open Market Committee showed that “several” members of the central bank’s policy-setting panel judged that it would be appropriate to raise the benchmark lending rate “relatively soon.”

Uncertainty over the economic outlook, and the Fed’s desire to assure that job growth remains strong, has encouraged investors to bet more heavily on a rate hike in December rather than at the FOMC’s Nov. 1-2 meeting, the week before the U.S. presidential election. Pricing in federal funds future contracts indicates they see a roughly two thirds probability of a move in December versus less than 20 percent next month.

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Samed Olukoya

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Brent Crude Hits $88.42, WTI Climbs to $83.36 on Dollar Index Dip

Published

19 mins ago

April 24, 2024

Samed Olukoya

Oil prices surged as Brent crude oil appreciated to $88.42 a barrel while U.S. West Texas Intermediate (WTI) crude climbed to $83.36 a barrel.

The uptick in prices comes as the U.S. dollar index dipped to its lowest level in over a week, prompting investors to shift their focus from geopolitical tensions to global economic conditions.

The weakening of the U.S. dollar, a key factor influencing oil prices, provided a boost to dollar-denominated commodities like oil. As the dollar index fell, demand for oil from investors holding other currencies increased, leading to the rise in prices.

Investors also found support in euro zone data indicating a robust expansion in business activity, with April witnessing the fastest pace of growth in nearly a year.

Andrew Lipow, president of Lipow Oil Associates, noted that the market had been under pressure due to sluggish growth in the euro zone, making any signs of improvement supportive for oil prices.

Market participants are increasingly looking beyond geopolitical tensions and focusing on economic indicators and supply-and-demand dynamics.

Despite initial concerns regarding tensions between Israel and Iran and uncertainties surrounding China’s economic performance, the market sentiment remained optimistic, buoyed by expectations of steady oil demand.

Analysts anticipate the release of key economic data later in the week, including U.S. first-quarter gross domestic product (GDP) figures and March’s personal consumption expenditures, which serve as the Federal Reserve’s preferred inflation gauge.

These data points are expected to provide further insights into the health of the economy and potentially impact oil prices.

Also, anticipation builds around the release of U.S. crude oil inventory data by the Energy Information Administration, scheduled for Wednesday.

Preliminary reports suggest an increase in crude oil inventories alongside a decrease in refined product stockpiles, reflecting ongoing dynamics in the oil market.

As oil prices continue their upward trajectory, investors remain vigilant, monitoring economic indicators and geopolitical developments for further cues on the future direction of the market.

Crude Oil

NNPC and Newcross Set to Boost Awoba Unit Field Production to 12,000 bpd

Published

21 hours ago

April 23, 2024

Samed Olukoya

NNPC and Newcross Exploration and Production Ltd are working together to increase production at the Awoba Unit Field to 12,000 barrels per day (bpd) within the next 30 days.

This initiative, aimed at optimizing hydrocarbon asset production, follows the recent restart of operations at the Awoba field, which commenced this month after a hiatus.

The field, located in the mangrove swamp south of Port Harcourt, Rivers State, ceased production in 2021 due to logistical challenges and crude oil theft.

The joint venture between NNPC and Newcross is poised to bolster national revenue and meet OPEC production quotas, contributing significantly to Nigeria’s energy sector.

Mele Kyari, NNPC’s Group Chief Executive Officer, attributes this achievement to a conducive operating environment fostered by the administration of President Bola Ahmed Tinubu.

The endeavor underscores a collective effort involving stakeholders from various sectors, including staff, operators, host communities, and security agencies, aimed at revitalizing Nigeria’s oil and gas sector.

Gold

Gold Prices Slide Below $2,300 as Investors Digest Fed’s Rate Outlook

Published

22 hours ago

April 23, 2024

Samed Olukoya

Amidst a backdrop of global economic shifts and geopolitical recalibration, gold prices dipped below the $2,300 price level.

The decline comes as investors carefully analyse signals from the Federal Reserve regarding its future interest rate policies.

After reaching record highs earlier this month, gold suffered its most daily decline in nearly two years, shedding 2.7% on Monday.

The recent retreat reflects a multifaceted landscape where concerns over escalating tensions in the Middle East have eased, coupled with indications that the Federal Reserve may maintain higher interest rates for a prolonged period.

Richard Grace, a senior currency analyst and international economist at ITC Markets, noted that tactical short-selling likely contributed to the decline, especially given the rapid surge in gold prices witnessed recently.

Despite this setback, bullion remains up approximately 15% since mid-February, supported by ongoing geopolitical uncertainties, central bank purchases, and robust demand from Chinese consumers.

The shift in focus among investors now turns toward forthcoming US economic data, including key inflation metrics favored by the Federal Reserve.

These data points are anticipated to provide further insights into the central bank’s monetary policy trajectory.

Over recent weeks, policymakers have adopted a more hawkish tone in response to consistently strong inflation reports, leading market participants to adjust their expectations regarding the timing of future interest rate adjustments.

As markets recalibrate their expectations for monetary policy, the prospect of a higher-for-longer interest rate environment poses challenges for gold, which traditionally does not offer interest-bearing returns.

Spot gold prices dropped by 1.2% to $2,298.67 an ounce, with the Bloomberg Dollar Spot Index remaining relatively stable. Silver, palladium, and platinum also experienced declines following gold’s retreat.

The ongoing interplay between economic indicators, geopolitical developments, and central bank policies continues to shape the trajectory of precious metal markets.

While gold faces near-term headwinds, its status as a safe-haven asset and store of value ensures that it remains a focal point for investors navigating uncertain global dynamics.