A Simple Question for Janet Yellen

In her testimony before Congress this week Janet Yellen said that she expect the economy to continue to improve.

"if economic conditions continue to improve, as the committee anticipates the committee will at some point begin considering an increase in the target range for the federal funds rate on a meeting by meeting basis."

A few weeks ago, Goldman Sachs Chief US equity strategist, David Kostin highlighted that the consensus forecast for S&P 500 sales growth in 2015 is now zero. Most of the sales decline is due to falling energy prices but weren't consumers lead to believe that this would be good for the US economy? In fact, for the first time in 6 years the Consumer Price Index turned negative in January.

 

 

So our savings at the gas pump has yet to materialize elsewhere. What is materializing is layoff notices. Jobless claims jumped 31,000 this week.

My question for Ms. Yellen is simple and straight forward: Where is the demand that she expects to drive our economic improvement going to come from? Does she anticipate that consumers will leverage their tepid wage gains into more debt? Will big businesses ignore the earnings hit from the strong dollar? Please detail for us where you see demand materializing from to lift our economy from deflation to inflation so you can justify raising interest rates?

The Federal Reserve tapered and then ended QE last year. That was an effort to reduce stimulus-tapering is tightening. The rest of the developed globe is in deflation. Other than sub-prime car loans and student debt, end demand is nowhere to be found.

Last modified on Wednesday, 17 June 2015 10:08
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