What happened this week?
Fed Chair Janet Yellen soothed some nerves, that’s what. Yellen said on Wednesday, in just her second public speech after succeeding Ben Bernanke, that the Federal Reserve will keep its key interest rate near zero for however long it takes to meet the central bank’s target on employment and inflation.
“I’m relieved that she’s worried about this because there is a lot of slackness in the labor market,” said Felix Salmon from Reuters. “There’s a huge number of people out there who should be working, and who aren’t working, and who aren’t necessarily picked up in the unemployment figures. And the fact that she’s well aware of this relieves me, because I don’t want her to start raising rates just because the unemployment rate goes down if the optimal number of people don’t have jobs.”
“If you look at the history of previous financial crisis, usually it can decade before things really heal and before people get back to work and the economy recovers,” said Catherine Rampell, from the Washington Post. “In comparison to other recessions in recent memory this feels like a really long drawn out recovery, but compared to previous recoveries following financial crisis, we’re about on track.”
In regards to inflation overall, Salmon believes it has its pros and cons.
“Inflation works as a kind of grease to the economy. If you know that prices are gonna go up tomorrow, you spend money today. And you get excited about prices going up and you make more money in the future. It’s weird but true that a small level of inflation is a really good thing for both economic growth and for employment.”
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