Yellen Warns Anecdotal Signs Show Businesses Putting a Pause on Spending
(Bloomberg) -- On paper, it still looks like a dynamite macroeconomic environment in the U.S. But outside the numbers, some cracks are starting to emerge, said Former Federal Reserve Chair Janet Yellen.
“All the hard data that we have on economic activity suggests that things are in good shape,’’ Yellen said during an onstage interview at the National Retail Federation’s annual trade show in New York City.
But while 2018 was a good year, in 2019 “almost all economists are forecasting a slowdown,’’ she said. “The global economy was firing on all cylinders in 2018 and now looks like we’ve got less strong and less synchronized global growth.’’
Yellen, who was replaced by Jerome Powell last February as head of the U.S. central bank, cited downside risk in Europe, global trade tensions and an apparent slowdown in China as key factors to watch in 2019. These anxieties come on the heels of a year where the U.S. saw about 3 percent overall economic growth, the creation of 2.6 million jobs and a strong consumer environment fueled by tax cuts and low gas prices, she said.
“We’re hearing anecdotal reports’’ about “businesses beginning to put investment plans on hold because of the uncertainties they face in the global environment and around supply chains and trade,’’ Yellen said Monday at the annual gathering of retail-industry professionals. A “tightening of financial conditions, the drop in the stock market, the strong dollar, higher corporate borrowing rates -- that could slow the economy as well as having some real feedback effects.’’
Yellen’s tempered outlook echoes remarks made Sunday by Kroger Co. Chief Executive Officer Rodney McMullen at the same event. Despite strong consumer confidence, U.S. retailers’ in-store traffic slipped during the critical Black Friday weekend in November, and a series of lackluster holiday sales reports in the past week suggest consumer optimism may not be as high as forecasters expected heading into the Christmas season.
“It’s fascinating right now from a customer standpoint. They feel incredibly good about the economy but very nervous about where things are headed,’’ said McMullen, warning a recession was a possibility, though certainly not the only potential outcome.
How it all plays out will have a major impact on the Fed’s decision to raise interest rates.
“If there is a downturn in the global economy and it spills over to the United States, we could have seen the last interest rate increase for this cycle -- that’s a possibility,’’ Yellen said. “I think at this point, the Fed will take a breather, evaluate where the economy is, look to see if downside risks do materialize. Perhaps another interest rate or two, get a little closer to 3 percent, I think that’s perfectly possible but nothing’s baked in the cake in the long-term global interest rates.’’
And if her successor doesn’t heed the warning and raises rates too soon?
“He shouldn’t tighten so preemptively that he causes a recession or brings this expansion to an end,” Yellen said. “If he’s not a little bit careful, history could repeat itself.”
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