The Problems with Remaining Dovish on the Economy
Tuesday, March 29th, 2016
Today, when Federal Reserve Chairwoman Janet Yellen spoke to the Economic Club of NY, it was surprising because she has turned “dovish” on the economy.
Let me explain; there are two terms used when describing members of the Federal Reserve and their stance on the economy. One is a dove, (such as Janet Yellen,) which means less concern with inflation and more concern on growing the economy and job market.
Another is considered a hawk, which is more concern about inflation, and a willingness to slow down the economy so it doesn’t overheat and experience runaway inflation.
Yellen’s comments were rather surprising, because recent employment numbers have been very strong, with unemployment under 5% and jobless claims setting records lows.
Consumer confidence came in 96.2, well above the expected 94.0 and last period’s 92.2. Car sales are pushing 18 million units a year; compared to the 2009 recession of 10 million units.
Year-over-year housing prices are up 5.7%, and the housing market is moving along at a nice pace.
So what is Janet Yellen so concerned about? No one seems to understand.
She appears to be like a mother who will not let her kids go out and play, because she is afraid they will get hurt. The time has come to let the kids spread their wings and experience life.
It is the same for the economy, time to test the economic numbers. The problem with remaining dovish for too long is that when the economy slows down, she has no bullets left to fight it. All she can do is go back to QE and a bond buying program, which puts more stress on debt levels of the government.
My opinion is, she now has to reload the economic gun and put back some of the bullets we used during the financial crisis.
It appears interest rates will remain low a while longer, but hopefully not too much longer. The longer they do, the less capable we will be able to fight inflation down the road.
A quick comment I wanted to make on the job market, and for those who say there are no jobs out there- It has become apparent to me that some people want jobs in which they get paid for just showing up and not working.
While some may disagree, I apologize, but I believe part of the problem is some parents in my generation were too easy on their children.
It was the first generation where everyone got a trophy just for showing up, and now have been taught “I don’t have to try hard or play hard, I get a trophy just for being here.”
So now, as an adult, they have learned “you need to pay me for just being at work. I don’t need to work. I’m here… where’s my trophy?”
I have spoken with some business owners who will tell you they run across this all too often. One of them owns a construction company, and finds it difficult to have employees really work hard for $54/hour.
When I grew up, we were taught if you train and work hard enough, you might be able to win that trophy. It felt so good to win, because you worked as hard as you could to be your best. I was told it was self-fulfillment.
I sound like my parents when I say “those were the good old days,” but back then nothing was given to you. You received what you worked for. So I have to wonder if part of the problems of today are due to recent generations, looking forward to their guaranteed snacks and trophies just for showing up.
Do you have a question or a company you'd like me to take a look at? Email me at Brent@WilseyAssetManagement.com!
Wilsey is president of Wilsey Asset Management and can be heard at 8 a.m. every Saturday on KFMB AM760. Information is provided by Reuters.
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