Russian rouble crisis will have little effect on the US, Federal Reserve says

Janet Yellen

Federal Reserve chair Janet Yellen says the US has very little to fear from the collapse of the Russian rouble because the US does very little trade and financial business with Moscow.

“I see the spillover as very small,” Yellen said on Wednesday. She said even if Russia were to default, trade with Russia accounts for 1% of US trade volume, and American banks have little exposure to Russian residents. 

In her regular Fed press conference about the state of the US economy, Yellen also set the stage for a calm 2015. She said the effect of falling oil prices would have a “transitory” effect on the US economy, that the housing market should be stronger with greater lending, and that there would be growth despite the fact that “too many” Americans can’t find jobs.

“Employment is rising at a healthy rate and the US economy is strengthening,” Yellen said.

The statements are the most excitement to be found in the December meeting of the Federal Reserve, which seeks to give regular guidance about the US economy while making as few waves as possible.

That results in gentle, vague, gnomic statements from the Fed, which are then pored over by experts with the attention to detail one might expect to ancient biblical scrolls.

As an example, the biggest source of excitement leading up to Yellen’s press conference was about the omission of three words regarding when the central bank would raise interest rates: “in considerable time”.

The weighty phrase refers to the Fed’s expectation that it would eventually raise interest rates, which have been hovering near zero for five years. Most recently in October, the Fed said it would raise rates “in considerable time” after ending its $3tn bond-buying stimulus program, quantitative easing. The Fed stopped buying bonds for quantitative easing in October. 

Economists widely expect interest rates to rise in mid-2015. Yellen was vague about the timing, saying rates would not rise for at least two more meetings but committing to no particular time. The event of higher interest rates is so widely anticipated on Wall Street and in Washington that it is frequently called “liftoff”, for its anticipated effect on the US economy. 

The Fed has repeatedly advised market participants not to get too excited about an immediate rise in interest rates. In the central bank’s guidance, “the word ‘patient’ has shown up frequently”, noted Goldman Sachs analysts Jari Stehn and Kris Dawsey.

After five years of waiting, however, patience is wearing thin.

Lindsey Group analyst Peter Boockvar dismissed the Fed’s statement as a “game of semantics” and scoffed that the central bank “again tried to thread a needle by maintaining the market’s expectations of a 2015 [interest rate] hike but at the same time giving us no clue as to when”.

Yellen and others at the Fed have repeatedly said they would like to see the economy improve significantly before interest rates rise.

While Yellen said the US economy is growing, she also cited some warning signs: “it’s surprising that housing hasn’t recovered more than it has,” she said.

In addition, the job market is still rocky, with more than 9 million people out of work. One of the Fed’s two mandates is to use interest rates and other tools to bring the US to full employment.

“There is room for further improvement, with too many people who want jobs unable to find them, too many who take a part-time job because full-time isn’t available, and too many who have given up searching for a job but would likely do so if the labor market were stronger,” Yellen said.

Consumers should not have to pay too much more for goods and services next year, Yellen said, as she predicted an inflation rate of about 1%. Today, the Bureau of Labor Statistics announced that consumer prices had posted the largest decline in six years.

Powered by Guardian.co.ukThis article was written by Heidi Moore in New York, for theguardian.com on Wednesday 17th December 2014 21.46 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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