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Yellen Defends Legacy Amid Uncertainty Over Fed Leadership

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Janet Yellen
  • Yellen Defends Legacy Amid Uncertainty Over Fed Leadership

Federal Reserve Chair Janet Yellen defended the central bank’s use of unconventional and often unpopular monetary policy tools after the Great Recession, highlighting some of her achievements at the helm as President Donald Trump weighs her reappointment.

“The U.S. economy is much stronger today than it would have been without the unconventional monetary policy tools deployed by the Federal Reserve in response to the Great Recession,” Yellen said in Washington on Friday.

Yellen, on a short list of potential Fed chairs being reviewed by Trump, made the case for preserving policy makers’ ability to confront the next recession with more bond purchases, a strategy known as quantitative easing aimed at lowering borrowing rates.

“While I believe that influencing short-term interest rates should continue to be our primary monetary policy lever in normal times, our unconventional policy tools will likely be needed again should some future economic downturn drive short-term interest rates back to their effective lower bound,” Yellen said.

Yellen and her predecessor Ben Bernanke were heavily criticized by Republicans in Congress for bloating the Fed’s balance sheet with $3.5 trillion in Treasuries and mortgage-backed securities. They often claimed the effort only served to encourage government deficit spending and risk-taking by investors.

Gradual Unwind

The Fed began shrinking that balance sheet this month.

“One should recognize that the recovery could have been much slower in the absence of our unconventional tools,” Yellen said. She said that evidence “strongly suggests” that bond purchases helped spur economic activity and lower unemployment.

If the Fed does consider bond purchases again, it’s unclear whether Yellen will have any role. Her four-year term as chair is set to expire in February.

Trump said earlier on Friday he’s considering Yellen along with Fed Governor Jerome Powell, Stanford University professor John Taylor and “a couple of others.”

“Most people are saying it’s down to two — Mr. Taylor and Mr. Powell,” Trump said in an interview with Fox Business to be broadcast on Sunday and Monday. “I also met with Janet Yellen, who I like a lot, I really like her a lot,” he said. “So I have three people that I’m looking at, and there are a couple of others. I’d say I will make my decision very shortly.”

Forward Guidance

Taylor has questioned bond-buying. If rates were to return to zero, he has suggested it would be sufficient to rely on public assurances by the Fed to hold rock-bottom rates for an extended period of time — a communications strategy known as forward guidance — to help bring long-term borrowing costs down.

Amid the drama surrounding the Fed chair selection, officials are still struggling to understand contradictory economic data and what that should mean for monetary policy.

The Federal Open Market Committee hiked rates in March and June, primarily spurred by the expectation that robust job gains would eventually raise wages and inflation. Surprisingly low inflation in recent months, however, has caused several policy makers to waiver in their resolve to move again in December.

Unemployment fell to 4.2 percent in September, its lowest level in more than 16 years. Despite that, the Fed’s favorite measure of inflation languished at 1.4 percent in the 12 months through August, well below the central bank’s 2 percent target.

Yellen has called this a “mystery,” but has signaled her desire to continue raising rates gradually. Investors see the probability of a December hike at about 80 percent, according to pricing in federal funds futures contracts.

Noting that the economy is operating near maximum employment and inflation is expected to rise to 2 percent over the next couple of years, Yellen said Friday the U.S. economy has made “great strides.”

Trump is pushing Congress to overhaul the U.S. tax code. Yellen declined to comment directly on measures being debated on Capitol Hill and said the response of the central bank to fiscal stimulus would depend on the nature of the tax package that is put into effect.

She said that given low U.S. potential growth and tepid productivity, “my personal hope is that whatever Congress passes will be a package that is rich in incentive-effects on the supply side that would boost capital formation and spur productivity growth.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial market.

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Forex

Naira Slides to N475 Against US Dollar on Black Market

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Nigeria 500 naira notes

Naira Trades at N475 Against US Dollar

Persistent dollar scarcity continues to hurt the value of the Nigerian Naira against its global counterparts across the nation’s forex segments.

The local currency declined to N475 to a US dollar on the parallel market, known as the black market. This represents a N1 decline from the N474 it traded on Thursday.

Against the British Pound, the Naira remained at N600. The same rate it exchanged on Friday. The local currency has lost N20 against the British Pound in the last three weeks amid rising unclear economic path.

The Naira declined by N5 against the Euro common currency to N550, down from N545 it sold on Thursday.

On the Investors and Exporters Forex Window, the local currency improved with the surge in turnover. Naira gained about N3 from N389 it exchanged against the US dollar on the I&E fx window last week to N386 on Friday.

Investors traded $92.22 million on Friday, up from the $18.83 million exchanged on Monday August 3, 2020.

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Naira Plunges Against British Pound to N600 on Black Market

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pound-sterling

Naira Falls  by N20 Against British Pound to N600

Economic uncertainties amid low oil prices weighed on the Nigerian Naira against its global counterparts.

The Naira plunged against the British Pound by N20 from N580 it exchanged two weeks ago on the black market to N600 on Thursday and remained at the same rate on Friday morning.

The local currency has remained under pressure since Coronavirus disrupted global economics and demand for global oil earlier in the year. Nigeria, an oil-dependent economy, was one of the nations affected by the low oil prices and disruption of global supply chain and logistics.

This coupled with a series of local challenges like the rising cost of servicing debt to revenue, weak manufacturing sector that depends on importation for most of its raw materials, unclear economic direction that deterred foreign investors and eventually weighed on the nation’s foreign direct investment and capital importation hurt the nation’s economic outlook and investment sentiment.

Against the Euro common currency, the Naira declined by N35 to N545 on Thursday, down from N510 it traded about three weeks ago.

This decline continues against the United States dollar as the local currency traded at N474 to a US dollar, down from N465 it was exchanged three weeks ago.

The inability of the Central Bank of Nigeria to support the local currency through sufficient dollar liquidity continues to impact the manufacturing sector and other key sectors that depend on importation for operations.

Also, the scarcity dictates the Naira exchange rate to its counterparts, especially after a recent report showed foreign investors are looking to access the US dollar to repatriate their funds.

Other factors, like the recent Shoprite announcement that it was pulling out of Nigeria, Africa’s largest economy, due to falling revenue and challenging business environment compounded the nation’s woes.

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Naira Declines Slightly on the Black Market to N474/$

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Naira Drops Marginally on the Black Market to N474 Against US Dollar

Nigerian Naira declined marginally on Tuesday on the parallel market, popularly known as the black market.

The local currency declined by N1 to N474 per US dollar, down from the N473 it traded on Monday.

This was coming after Shoprite announced it would be exiting Nigeria, Africa’s largest economy. The announcement further damped the nation’s economic outlook amid the already heighten economic uncertainties.

Nigeria continues to struggle with low dollar availability after low oil prices and weak global demand for the commodity eroded the nation’s foreign revenue generation.

On the Investors and Exporters Forex window, the Naira remained pressured at N389 to a US dollar, better than the N389.25 it exchanged on Monday but more than the N381 stipulated by the Central Bank of Nigeria.

Total turnover traded by investors rose from $18.83 million traded on Monday to $24.66 million on Tuesday.

Experts have said the series of bad news emanating from the country will continue to deter potential investors and hurt capital importation necessary to boost dollar liquidity.

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