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Yellen Likely to Keep Rates Low

Your Money: Analysts: Fed successor likely to keep rates low

Erin E. Arvedlund (Inquirer) Wednesday, September 25, 2013, 2:01 AM

When Ben Bernanke steps down as chairman of the Federal Reserve on Jan. 31, 2014, he will have built up a balance sheet that has ballooned to about $4 trillion, nearly double what he inherited.

What will his expected successor, the current Fed vice chair, Janet Yellen, do to unwind all of the bond purchases?

Very likely not much, says Randall Kroszner, professor at the University of Chicago Booth School of Business and a former governor of the Federal Reserve System. He says the new Fed chair “will confront a monetary situation unlike anything since the 1930s.”

As for Yellen’s approach: “The cliché is she’s dovish,” Kroszner said, meaning the Fed will keep rates lower longer. However, Kroszner also says of Yellen that she “really looks at data, so the dove-hawk thing suggests an ideology. To say she’s a knee-jerk dove is incorrect.

“Janet is more swayed by data and analysis. She sees more efficacy in quantitative easing and lower costs associated with it” than other members of the Federal Reserve, he told a Bloomberg conference Tuesday.

Kroszner said to look for changes in wording out of the Fed such as “sustainable recovery” or “substantial recovery,” which investors see as terms that the central bank believes the U.S. economy is improving.

Meanwhile, a Levittown native has put together a leading economic indicator that could help investors and their economic forecasts.

Arthur A. Ferri, an advanced analytics consultant for Billtrust, has put together an index correlating strongly to change in nominal GDP, or gross domestic product. Billtrust, a provider of outsourced billing and payments systems based in Hamilton, N.J., in November received a $25 million investment from Bain Capital Ventures. Billtrust competes with Kubra and publicly traded CSG Systems International, and counts Kraft Foods Group, Whirlpool Corp., and Under Armour as clients.

The B2B Sales Index from Billtrust, an indicator of current and trending U.S. economic conditions based on a sampling of B2B invoice activity, shows a seasonally adjusted monthly growth rate in August vs. July, but indicates continued lackluster performance for the U.S. economy over the near term.

“Based on the most recent results, the forecast for December 2013 through February 2014 would be flat” economic growth, Ferri said in an interview.

Takeaway? No rate increases any time soon.

 


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