It was a strange moment during Janet Yellen’s press conference Wednesday, the moment when she was asked when was the right time to raise rates: “If not now, when?” She gave a rambling answer that seemed to reflect an underlying anxiety.
Some traders flippantly remarked that it was like the Fed had a new dual mandate: Instead of “jobs and inflation” it was “Trump and Sanders.”
It’s a good point: The Fed gave the market everything it wanted Wednesday, mainly a modest upgrade to the economy’s outlook and a reduction of its interest rate forecast, yet the market hardly took off.
Call it the schizophrenic stock market — it doesn’t really know what face it wants to show the world.
Here’s the “goldilocks” market viewpoint:
1) No recession in sight;
2) interest rates are low;
3) inflation is up slightly, but not a significant issue; and
4) the labor market is in good shape.
Given that, why does the market continue to have such a tentative feel to it, and why did Janet Yellen seem to reflect that tentative feel? It seems to go beyond the somewhat boilerplate Fed statement that “global economic and financial developments continue to pose risks.”
The short answer, as many have suggested, is that there is far more pain, anxiety, and danger in the U.S. economy than statistics suggest:
1) Growth is slow;
2) wages are stagnant; and
3) there are a lot of “disappeared” workers in the economy who don’t seek jobs, or who don’t even qualify for jobless benefits anymore.
This is why we have Donald Trump and Bernie Sanders, and this is why we have the position of Janet Yellen, because she is not just looking at jobs and inflation. The Fed is looking at the overall state of the economy, and the fact that Trump and Sanders have gone so far on the data points above surely are not lost on Yellen and company.