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Weak Obama Economy Flunks Fed Scorecard on Rate Hikes

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.
You could almost see the assembled press corps' faces drop when the Fed's Open Market Committee said it wanted to see "further improvement" in the U.S. labor market before raising interest rates.

For months, these economic reporters have been telling us that the Obama economy was stronger than ever and that we were in the midst of "blistering job growth," as the liberal Washington Post bombastically characterized the employment market earlier this month.

Surely the Fed was now ready to say when they would remove the economy's low interest rate crutches.

But at her news conference Wednesday, to the dismay of the Obama apologists, Fed Chair Janet Yellen wasn't ready to go that far. And she made it clear that the Federal Reserve Board was in no hurry to start moving near-zero interest rates up to "normal" levels.

Some reporters tried to make much of why the Fed had dropped the word "patient" from their statement on when it was ever likely they would pull the life support plug on the underperforming Obama economy.

But Yellen testily replied that the Fed was in no rush to make irrational conclusions about the economy -- certainly not because of the dubious, everything's-coming-up-roses economic stories on the nightly network news shows.

"Just because we removed the word 'patient' from the statement doesn't mean we are going to be impatient," Yellen shot back.

With that tart response, "Yellen was putting her firm stamp on the policy of an institution she has led for just over a year -- and making clear that she will not be boxed in," writes New York Times economic analyst Neil Irwin.

"Her words and accompanying announcements conveyed the message that the Yellen Fed has no intention of taking the support struts of low interest rates away until she is absolutely confident that economic growth will hold up without them," he observed.

The financial community expected that the Fed -- in the belief that the Obama economy no longer needed to be propped up -- would raise rates by April or at the latest, September. But now all bets are off.

The Fed has clearly turned decidedly more bearish on the Obama economy than it was about three months ago -- adopting a far more cautious position.

Inflation remains tame, and job growth has "improved," the Fed said, but economic growth "has moderated."

Moderated? That's putting it mildly. How about fallen, weakened, stalled, collapsed?
The Fed regularly surveys its regional presidents and its 17 board members, asking for their forecasts of future economic growth. It's not a pretty picture.

Their forecasts for the next two years have fallen into the mediocre, upper 2 percent range, sharply down from their upper 3 percent forecast just three months ago.

Yellen and her colleagues met this week at a time when the economic numbers have been pitiful.

The output at U.S. factories fell for the third consecutive month in February, pounded downward by a large decline in production at auto plants.

Retail sales, which turned in a disappointing report at the end of 2014, fell for the third straight month in a row in February -- dropping by 0.6 percent after falling by nearly 1 percent in January. It was the first time sales had fallen for three consecutive months since 2012.

While weather was a factor last month, so was flat wage growth and limited incomes, as consumers tightened their belts, put off big ticket purchases and struggled to rebuild depleted savings.

And that's not likely to change anytime soon, because a large number of the new jobs reported each month by the Bureau of Labor Statistics were in the economy's lowest-paying sectors: restaurants, retailing and other services, many of them part-time.

"Even with a surge in pay for less skilled workers at businesses like Starbucks and Walmart, wage growth among service activities is not likely to power much of a boost in economy-wide pay," says University of Maryland business economist Peter Morici.

Yes, Obama brags that unemployment has fallen, but says nothing about the 13 million, long-term unemployed between the ages of 25 and 64 who are on the sidelines.

Morici says many of these workers, who are "neither employed nor actively looking for a job," are not counted among the unemployed. Subtract them from the workforce column, and guess what happens? Unemployment goes down. Pretty clever, huh?

But the critical number shaping the Fed's bearish report Wednesday was the shrinking Gross Domestic Product (GDP), the best measurement of the economy's growth rate.

In the past few months, GDP growth has averaged an anemic 2 percent, amid growing fears among Fed analysts that significantly stronger growth is not likely in 2015 and 2016.

Yellen used the word "uncertainty" in her remarks about the future of the economy, and that has been the hallmark of the Obama presidency and its economic policies.

We are in the seventh year of that presidency and the seventh year of an economy still struggling to rise above 2 percent growth, a sluggish economy that is noted as much for its unshakeable weakness as for its persistent volatility.

And an economy that is still being propped up and kept alive by the Federal Reserve's near zero interest rates.

That's why the Fed "appeared much more dovish and in not much of a hurry to actually pull the trigger," said Paul Edelstein, an economist at IHS Global Insight.

At the half-way point in Ronald Reagan's presidency, the economy was growing by 8 percent in the second quarter.

In the second quarter of 2012, Obama's economy barely grew by 1.5 percent.

So Yellen postpones any action until the economy gets noticeably stronger. She's got a long wait.

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