The Fed Could Do More?

Nov. 26, 2013
Janet Yellen’s claims regarding Fed actions deserve closer scrutiny.

Janet Yellen, the nominee to replace Dr. Bernanke as the chairperson at the Federal Reserve, recently told the Senate Banking Committee that she would “ensure that monetary stimulus is not removed too soon.”  She is committed to keeping interest rates low and the $85 billion/month bond buying program in place, and there is no evidence of an asset bubble at this time.  Fans of low interest rates should be encouraged.  Readers afraid of future inflation should take note – the fires are continuing to be stoked. 

Vice Chair Yellen even said that the Fed could do more to support the economy.  I suppose we could go to negative interest rates and an even larger bond-buying program.  This seems to be a case of little faith in the free market and unbridled faith in economic controls.

Ms. Yellen said the central bank’s asset purchases “have made a meaningful contribution to economic growth and improving the outlook.”  The former is not a surprise, since she is a Keynesian in terms of economic philosophy and no doubt believes what she says.  I have no doubt as to her intellectual capabilities in general, but I find that statement regarding a meaningful contribution to economic growth to be most curious.  There is no evidence of this, only an economic theory. 

Job growth has been tepid at best given the rate of population growth.  The implication of her statement would therefore be that apart from the Fed there would be virtually no job growth.  That would mean that the cost advantages that have accrued to the US in recent years did not matter, the credit goes to the Fed.  It would mean that the growth in the energy sector, and that everything that is related to it, were not causal.  It would mean that the technological improvements purchased by industry since 2010 were of no impact.  How can anyone really believe that? 

Keynesians would say that low interest rates made that possible.  That is an interesting point, but one that does not sit well when you consider all the discussion of the last few years of how low interest rates have been analogous to pushing on a piece of string.  Business has not borrowed because interest rates were low; they borrowed to enhance their competitive position and would have likely done so if the market dictated interest rates that were higher than today.  We may even have found more investment occurring given that we would not have felt that the US economy was a sick patient in need of an IV drip called QE3. 

There are really good people at the Fed, please don’t get me wrong, but the really hard lifting when it comes to economic growth and job creation occurs in private industry, often despite the best efforts of Washington.

About the Author

Alan Beaulieu Blog | President

One of the country’s most informed economists, Alan Beaulieu is a principal of the ITR Economics where he serves as President. ITR predicts future economic trends with 94.7% accuracy rate and 60 years of correct calls. In his keynotes, Alan delivers clear, comprehensive action plans and tools for capitalizing on business cycle fluctuations and outperforming your competition--whether the economy is moving up, down, or in a recession.

Since 1990, he has been consulting with companies throughout the US, Europe, and Asia on how to forecast, plan, and increase their profits based on business cycle trend analysis. Alan is also the Senior Economic Advisor to NAW, Contributing Editor for INDUSTRYWEEK, and the Chief Economist for HARDI.

Alan is co-author, along with his brother Brian, of the book MAKE YOUR MOVE, and has written numerous articles on economic analysis. He makes up to 150 appearances each year, and his keynotes and seminars have helped thousands of business owners and executives capitalize on emerging trends. 

Prior to joining ITR Economics, Alan was a principal in a steel fabrication company and also in a software development company.

Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!