Yellen: Risks of a Recession Are Rising
Former Fed head says central bank's rate cuts and the trade war worry her.
Reported by Larry Light
In mid-2017, right before leaving office, she raised eyebrows by saying that no economic crisis would occur “in our lifetime.” She reasoned that, unlike the situation that led to the 2008 meltdown, banks had become more cautious about lending.
But this past week she declared she’d found “good reason to worry” about the US tumbling into another recession. While she didn’t see such a downturn imminently, she stated that the risks were mounting.
“I would bet that there would not be a recession in the coming year. But I would have to say that the odds of a recession are higher than normal and at a level that frankly I am not comfortable with,” she said.
One reason Yellen cited was the US-China trade war, harming Americans with higher prices due to tariffs and an overall sense of uneasiness. Plus, the Fed’s three recent rate cuts meant that the central bank now has less ammo to fight a recession, said Yellen, who started hiking rates in late 2015, after keeping them near zero like her predecessor, Ben Bernanke.
Now, she said, her successor had “not as much scope as I would like to see for the Fed to be able to respond to that. So, there is good reason to worry.” Similarly, she lamented the large federal deficits during a period of prosperity, which also would hinder fiscal policy to combat a slump.
She also found it worrisome that US corporations had packed on a lot of debt owing to low interest rates, which threatened to hurt them once the economy chilled. “If there is a recession, there will be a lot of companies that will be in trouble because of all the debt they’ve piled on,” Yellen said.
Yellen, a Democrat, pointed to income inequality as a malign force in society. “It’s a serious economic problem and social problem because it means the gains of our economic system are not being widely shared,” she contended.
Last winter, Yellen abandoned her previous stance of not criticizing Donald Trump when she said he had had no “grasp of economic policy.” She indicated that she doubted the president knew what the Fed was supposed to do.
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