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Janet Yellen Disapproves Of Trump's Trade Policy, Says Outlook Is "Excellent"

Kitco News

(Kitco News) - Despite this October yielding one of the worst stock market performances since 1987, Janet Yellen, former Chair of the Federal Reserve, remained optimistic in her economic outlook.

"At least in regards to the United States, I really think conditions are excellently excellent," she said during a live interview held at the 2018 Canada FinTech Forum in Montreal on Monday, "we haven't had an unemployment rate as low as 3.7% in almost 50 years."

The S&P 500 tumbled 10% since the start of October, marking the worst month for equities since the 2008 financial crisis.

Yellen highlighted strengths underlying the current economic condition, including an inflation rate above 2%, a strong labor market, and 3% growth in gross domestic product.

"I think strong growth in the United States is supporting the global economy, although perhaps the global economy, the emerging markets, is beginning to feel some pressures," she said.

Last Friday saw U.S. gross domestic product numbers coming in slightly higher than consensus expectations, with third quarter growth at 3.5%.

She said that although there are risks to her outlook, overall, she sees these risks as pretty balanced.

"I think 2019 should be a good, strong year," she concluded.

Yellen does have concerns around current monetary policy, especially in regards to the current Fed's more hawkish stance.

"I worry that with the labor market continuing to tighten, inflation may move up above the Fed's 2% objective [and this] could require some action by the Fed," she said.

Since her last Federal Reserve meeting as Chair in December, 2017, the Fed has raised rates three times, with a fourth hike anticipated by the markets for their December meeting.

On the December Fed meeting, Yellen said that she would advocate for another rate hike given current fundamental economic conditions, noting that it would take 3 or 4 more rate increases to reach a "neutral" interest rate.

"Nothing should ever be locked in stone, and things can happen. My presumption going into December is that a rate increase is appropriate but I would watch very carefully and maintain an open mind," she said.

On risks, Yellen said that there are two main risks that could deflate the current economic expansion: Fed policy errors, and financial imbalances.

"Economic expansions don't die of old age, and there are two things that tend to kill them off: one is the Fed, and the second is financial imbalances," she said.

Yellen noted, however, that financial institutions are in much better shape today than in 2008 to absorb a major negative financial shock if ever one were to occur.

On the ongoing trade war and U.S. President Donald Trump's tariffs on China, Yellen said that trade is a downside risk to the world economy.

"l really am not supportive of the President's trade policy. I don't think it's in the interest either of our trade partners or at the end of the day, frankly, in the U.S. interest," she said, "I think it's not going to bring back many jobs to the people who have lost them."

Yellen's comments come as the Trump Administration planned to announce by early December tariffs on all remaining Chinese imports should talks with Chinese President Xi Jingping fall short. The S&P 500 closed nearly 1% lower on Monday on the news.

Finally, on cryptocurrencies, Yellen said that coins like bitcoin are not considered legitimate currency, owing to their lack of ability to store value, and limited scope in everyday transactions.

"It has long been thought that for something to be a useful currency, it needs to be a stable source of value, and bitcoin is anything but. It's not used for a lot of transactions, it's not a stable source of value, and it's not an efficient means of processing payments. It's very slow in handling payments. It has difficulty because of its very decentralized nature," she said.

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