Yellen's wishful thinking

Article Highlights

  • Is Yellen just using wishful thinking in setting Fed policy?

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  • The Fed is ignoring emerging market problems to its own peril - lachman

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Last week, in her congressional debut as head of the Federal Reserve, Janet Yellen paid short shrift to the notion that recent international economic developments should be a major concern to the Fed as it continues tapering its bond-buying program. By so doing, she risked repeating the mistake of Ben Bernanke, her predecessor, who at the start of his tenure in 2006 grossly underestimated the global economic impact of the imminent bursting of the U.S. housing bubble.

On the contrary, developments abroad are signaling that the international economy could constitute a major headwind to the U.S. economic recovery this year. After all, the emerging market economies presently account for more than half of the global economy. Yellen seems to have overlooked the fact that, in addition to the present crisis in a number of major emerging market economies, Chinese growth is showing clear signs of slowing, and disturbing economic and political developments are evident in Europe’s troubled periphery.

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