During the symposium, Federal Reserve Chair Janet Yellen will provide her first keynote speech on labor markets tomorrow morning as chair of the U.S. central bank which comes at a pivotal time when the U.S. economy has recovered from the recession, the labor market has moved close to full employment, stocks are at near record highs, and policymakers are questioning whether the Federal Reserve should return to normalization and allow interest rates to rise from their record lows that were used to fend off a collapsing economy during the depths of the recession in 2008.
As Fed Chair Janet Yellen shares her insights and understanding about the health of the economy and the job market in particular, economists are trying to gauge if Fed policymakers are “behind the curve” and are waiting too long to raise rates for an economy that has grown more robust through past accommodative measures undertaken by Janet Yellen’s predecessor, former Fed Chair Ben Bernanke.
Winding down those simulative accommodative measures will prove to be a lot more complicated since rising interest rates will undoubtedly cause ripple effects in the broader U.S. economy and force borrowers to pay more cash in borrowing costs at a time when inflation is slowly increasing and income growth is modest at best.
With the Fed’s quantitative easing program slowing down by a pace of 10 billion per month and set to officially end in October, the focus for the market has now shifted to the Fed’s interest rate policy with short term interest rates.
The Fed continues to maintain the federal funds target of zero to 0.25 percent, historic lows.
Economists are expecting the Federal Reserve to raise rates in 2015, either in the summer or spring.
An earlier tightening of interest rates in 2015 signals a more confident approach or forecast about the health of the economy in 2015.
During the release of yesterday’s Fed Minutes from the July FOMC meeting, Fed Committee members struck a more hawkish tone about the economy after acknowledging an improving job market and rising inflation that is moving closer to its 2 percent target.
“The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced and judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat.”
However, Fed Committee members also pointed out that aspects of the labor market still remains weak and challenges persists with a slow recovery in the housing market that is largely uneven across the U.S.
“Labor market conditions improved, with the unemployment rate declining further. However, a range of labor market indicators suggests that there remains significant underutilization of labor resources. Household spending appears to be rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow.”