Caution, US Economy Faces Many Uncertainties

Caution, US Economy Faces Many Uncertainties

Caution, US Economy Faces Many Uncertainties


US Fed Chairwoman Janet Yellen told Congress Tuesday that the US economy faces a number of uncertainties that require the Fed to proceed cautiously in raising interest rates.

In the Fed’s twice-a-year economic report to Congress, Ms. Yellen cited a slowdown in job growth in April and May and said the Fed will be watching carefully to see whether the weaker momentum is temporary or a sign of a bigger problem.

Ms. Yellen expressed concerns about the global economy, including slower growth in China and the upcoming vote in Britain over leaving the EU. She also noted weak productivity growth in the US and persistently low inflation

In her testimony Tuesday before the Senate Banking Committee, Ms. Yellen acknowledged the problems weighing on the economy.

“Economic growth has been uneven over recent quarters,” she said. “Subdued foreign growth and the appreciation of the dollar weighed on exports while the energy sector was hit hard by the steep drop in oil prices since mid-2014. In addition, business investment outside of the energy sector was surprisingly weak.”

During the Q & A session, Ms. Yellen was asked about the likelihood that the country could be in a recession by the end of the year.

She said she expects the U.S. economy to grow and described the possibility of a recession this year as “quite low.” She was told by Democrats on the committee to make sure that the Fed did not raise rates so fast that it could derail a fragile recovery.

Meanwhile, some Republicans questioned whether the Fed’s decision to keep rates at a record low near zero for seven years might be hurting growth.

Ms. Yellen said she did not believe there are any threats to financial stability at the moment. While the growth in credit had picked up, she does not see it at “worrisome levels,” she said.

While overall growth in the US economy, as measured by the GDP (gross domestic product), slowed to an anemic rate of 0.8% in Q-1, she pointed to encouraging signs that growth was strengthening in Q-2.

But even with a rebound in growth and job creation, Ms. Yellen noted other problems. While the overall employment rate has fallen to 4.7% from a high of 10%, she said it was “troubling” that the rate for African Americans and Hispanics remained above the national average. She said the median income for African Americans was “well below” the median for all households.

She said that “vulnerabilities in the global economy” included China’s challenges as it transitions away from reliance on export-led growth. She said that the vote Thursday in Britain over leaving the EU “could have significant economic repercussions.”

Fed officials are now being forced to rethink the path for rate hikes in the face of persistently slow economic growth and inflation that has remained below the Fed’s 2% target for the past 4 years.

Economic analysts now think the 1st rate hike this year is more likely to happen in December or early 2017

Tuesday, US major stock market indexes finished at: DJIA +24.86 at 17829.73, NAS Comp +6.55 at 4843.76, S&P 500 +5.65 at 2088.90

Volume: Trade was below average with about 831-M/shares exchanged on the NYSE

  • NAS Comp -3.3% YTD
  • Russell 2000 +1.6% YTD
  • S&P 500 +2.2% YTD
  • DJIA +2.3% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bullish (0.28) Neutral (-0.02) Bullish (0.48) Bullish (0.38)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Neutral (0.11) Neutral (0.03) Neutral (0.02) Bullish (0.29)
HeffX-LTN Analysis QQQ: Overall Short Intermediate Long
Neutral (0.02) Neutral (0.06) Neutral (0.02) Neutral (-0.03)
HeffX-LTN Analysis VXX:  Overall Short Intermediate Long
Neutral (-0.17) Neutral (0.04) Bearish (-0.29) Bearish (-0.25)

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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