If the Economy is Doing So Well, Why are Interest Rates So Low?
Janet Yellen testified yesterday in front of Congress. She was grilled aggressively by Scott Garrett a Congressman from New Jersey over the alleged political nature of the Federal Reserve.
In early September, Republican Presidential candidate Donald Trump made a series of statements accusing the Fed of keeping rates low as a favor to the current administration. After the Fed didn’t raise interest rates at its September 20-21st meeting, Ms. Yellen was asked at the press conference following the conclusion of that meeting whether the Fed took politics into consideration when making policy decisions, like whether to raise interest rates. She answered emphatically that politics plays not role in the Fed’s policy deliberations.
Mr. Trump repeated his charge that the Fed was political during the Presidential Debate with Hilary Clinton on Monday.
Yesterday, during Ms. Yellen’s testimony in front of Congress the issue of the Fed and politics arose when Congressman Garrett raised the issue that Fed Governor Brainard had donated money to the Hillary Clinton campaign and was in discussions with Ms. Clinton for a job in her administration should she become President.
The tone of Congress’ questioning was far from reverential or even deferential, but rather hostile towards Ms. Yellen. A clearly shaken Ms. Yellen insisted the Fed did not take politics into consideration in their deliberations, but Congressman Garrett was having none of it, insisting and insinuating that Ms. Brainard should be recused from Fed policy deliberations due to her donations and entreaties to Ms. Clinton.
It wasn’t an easy day for Ms. Yellen on Capitol Hill. Representative Frank Guinta, from New Hampshire asked Ms. Yellen what the labor force participation rate was. Ms. Yellen didn’t know the answer. After much shuffling of papers in front of her, a flustered Ms. Yellen finally blurted out the rate.
Simultaneous with Ms. Yellen’s testimony, FBI Director James Comey was testifying to Congress re his investigation of Ms. Clinton’s handling or mishandling of classified information. He too was greeted with hostile questioning, putting him on the defensive. At one point an exasperated Mr. Comey said the FBI are not weasels. A Congressman later told him ‘YOU BLEW IT”.
In addition to Ms. Yellen’s testimony, a handful of Fed officals also spoke yesterday. Despite the increased volume of Fed speak, there was little or no reaction in any of the markets.
The Fed has attempted to control markets through constant pronouncements regarding interest rate policy all year. The Fed, however, has only talked about raising interest rates but hasn’t raised them. Now, the Fed’s potential political reasons for not doing so is the topic of market conversations. Politics, more than the Fed will probably dominate market attention until the Presidential election is concluded in early November.
This article by BGASC is not, and should not be regarded as, investment advice or as a recommendation regarding any particular course of action.