Updated: Jun 22, 2022
US treasury secretary Janet Yellen is losing her credibility
I realise that as US treasury secretary Janet Yellen is a politician but her inconsistent public statements are starting to make her look weak. As we go into battle against high inflation, that's the last thing that's needed from the world's most important economy's most important economist.
Two weeks ago Yellen admitted she had been "wrong about the path inflation would take".
According to the FT, Yellen has now said that in relation to the size and scope of last year's US$1.9 trillion American Rescue Plan that she "wouldn’t do it differently”. This means either that she would have kept her views on the inflationary effects of the stimulus to herself or that given fears of high inflation she would still have believed the stimulus to be appropriate. Neither possibility paints her in a good light.
Yellen has also said that there was "nothing to suggest" the US is facing a recession. I get that she cannot say that the US is facing a recession but for the sake of her credibility she should at least admit that the risks have risen which they have. The 10y/2y yield curve is now flat which is a reliable indicator of an oncoming recession. The negative wealth effect of plummeting bond and equity prices has yet to kick in. Disposable incomes are being squeezed by higher prices which eventually will lead to a significant fall in spending.
Don't take my word for it - this is all in Economics 101.
The views expressed in this communication are those of Peter Elston at the time of writing and are subject to change without notice. They do not constitute investment advice and whilst all reasonable efforts have been used to ensure the accuracy of the information contained in this communication, the reliability, completeness or accuracy of the content cannot be guaranteed. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.
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