Fed Chair Janet Yellen laughed in response to a question about the possibility of a Donald Trump victory in November causing “an economic crash all over the world.”
“I’m sorry, I’ve got nothing for you,” she said, while chuckling. “We’re very focused on doing our jobs, and we’ll see what happens.”
Yellen was responding Monday morning to an audience member’s question after addressing the World Affairs Council in Philadelphia. The speech came as the national spotlight is on the Fed, with the central bank looking likely to hike interest rates next week after a regular board meeting.
Fed Chairs’ statements economic outlook are heavily scrutinized; to the extent that they occasionally impact financial markets in real time. Although they often strain themselves to refrain from commenting on partisan matters, Yellen didn’t entirely dismiss the possibility of a Trump election causing a worldwide meltdown, remarking: “we’ll see what happens.”
Yellen was selected to run the Fed by President Obama and would likely be replaced by a Republican President in 2018, when her term as Fed Chair is up.
Trump has already said he would pick someone more palatable to the party, though he has praised the Fed’s loose monetary policy under her tenure.
“People think the Fed should be raising interest rates,” he said in April. “If rates are 3 percent or 4 percent or whatever, you start adding that kind of number to an already reasonably crippled economy in terms of what we produce, that number is a very scary number.”
On the matter of impending interest rate increases, Yellen brushed aside a recent spate of reports casting a pall over the economy.
“[F]urther gradual increases in the federal funds are are likely to be appropriate,” she said.
Data about sluggish first quarter economic growth and recent signs of trouble in the job market strengthened critics of the Fed’s move toward interest rate “normalization.” The term refers to two planned 0.25-point-hikes in interest rates.
The first of those—and the first increase in the federal funds rate since 2006—occurred in December. US financial markets have been rattled since then; most notably by instability in China and a sharp drop in oil prices.
Although lower oil prices have brought meaningful relief to American consumers—to the tune of about $1,300 in added purchasing power since mid-2014, Yellen noted Monday—they have put a strain on banks and energy companies.
The US economy only grew by only 0.5 percent in the first quarter, according to Commerce Department data released in April. The news caused some high-ranking Fed officials to question the wisdom of carrying out a second hike this summer.
And last Friday, the Labor Department’s published its report on job creation in May, giving additional ammunition to “normalization” skeptics.
“Payroll gains were reported to have been much smaller in April and May than earlier in the year, averaging only about 80,000 per month,” Yellen conceded. She said that analysts shouldn’t put too much stock in “any single monthly report.”
Yellen also noted that “monetary policy is not on a preset course,” and said ongoing developments impact the Fed’s decision-making calculus.
