Yellen Signals Shift From Stimulating Economy to Sustaining Growth

Yellen Signals Shift From Stimulating Economy to Sustaining Growth

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Janet L. Yellen, the Federal Reserve chairwoman, at a news conference last month in Washington where she announced a rise in benchmark interest rates. CreditAl Drago/The New York Times

Janet L. Yellen, the Federal Reserve chairwoman, said Monday that the Fed was shifting its focus from stimulating the economy to keeping growth on an even keel.

She said the economy was “pretty healthy,” thanks in part to the Fed’s long-running stimulus campaign, which the central bank is moving to end.

“Looking forward, I think the economy is going to continue to grow at a moderate pace,” Ms. Yellen said during an event at the University of Michigan. “Our job is going to be to try to set monetary policy to sustain what we have achieved.”

The Fed raised its benchmark interest rate in March for the third time since the financial crisis, and said it planned two more rate increases this year. The Fed also said it planned to begin reducing its large holdings of securities by the end of the year. Ms. Yellen did not offer any additional details during her appearance on Monday.

Ms. Yellen, interviewed onstage by Susan M. Collins, the dean of the Ford School of Public Policy at the university, used the opportunity to make a strong case for the financial regulations enacted by Congress in the 2010 Dodd-Frank Act to address the problems revealed by the 2008 financial crisis.

President Trump and congressional Republicans have said they want to eliminate or overhaul many of those measures, which they regard as ineffective in preventing future financial crises and as impediments to economic growth.

Ms. Yellen pushed back on both counts. She cited changes that she said had increased the strength of the financial system, including requiring banks to raise more money from investors and subjecting large banks to annual stress tests.

“We have accomplished a lot, and we have a much safer system,” she said.

She also directly addressed the argument that the regulatory pendulum has swung too far and that government rules are preventing healthy financial activity. “I don’t think if you look at objective data on lending, that it’s possible to make the case that regulation has simply stifled lending,” Ms. Yellen said. “Lending is growing in a very healthy way as the economy has recovered.”

She said banks were actually in a better position to lend, although she acknowledged that the Fed would like to reduce the burden on smaller banks.

Ms. Yellen’s assessment of economic conditions remained upbeat.

She noted that the unemployment rate, which fell to 4.5 percent in March, is now below the level that most Fed officials regard as sustainable. Consumer spending is growing at a decent pace, and Ms. Yellen noted that the global economy was also looking “slightly more robust and healthier.” Though inflation remains a bit weaker than the 2 percent annual pace the Fed regards as healthy, she said it would be appropriate for the Fed to keep raising interest rates.

She said, however, that the economy still faced problems that were beyond the power of monetary policy. While job growth has been strong, economic growth remains relatively slow, around 2 percent a year in recent years. If more people are working, making more things or doing more things in less time, the economy should be growing faster.

“The fact that you can create that many jobs in the context of growth that is so low points to a significant problem,” Ms. Yellen said. “And the problem is that productivity growth is very low.”

Productivity measures the average person’s economic contribution. There are only two possible causes of economic growth: more people or increased productivity, which is to say, the same number of people making more stuff. We have slow population growth and slow productivity growth, so we have slow economic growth.

Economists regard the slow pace of productivity growth as something of a mystery. Ms. Yellen tipped her hat to a number of the theories in circulation.

Some economists think the flow of good ideas has simply slowed. Others point to a leveling-off in educational attainment. She also pointed to recent research that suggested one factor was a decline in corporate competition: less creation of new businesses and more corporate consolidation.

She also fielded some lighter questions. Asked how she dealt with pressure, Ms. Yellen described herself as an “ardent believer” in the importance of a good night’s sleep. Asked for life advice, she encouraged students to find a profession that fills them with a sense of enthusiasm every day.

“For me,” she said, “the core of having a satisfying career first and foremost was finding something to do that I really love.”

[“Source-nytimes”]