Former Federal Reserve Chair Janet Yellen says signs are pointing to a slowdown in business spending in 2019.
“All the hard data that we have on economic activity suggests that things are in good shape,’’ Yellen said during the National Retail Federation’s annual trade show in New York City, according to Bloomberg. But “almost all economists are forecasting a slowdown. The global economy was firing on all cylinders in 2018 and now looks like we’ve got less strong and less synchronized global growth.’’
Yellen added that downside risk in Europe, global trade tensions and a slowdown in China can all play a role in a slowdown this year.
“We’re hearing anecdotal reports’’ about “businesses beginning to put investment plans on hold because of the uncertainties they face in the global environment and around supply chains and trade,’’ Yellen said. A “tightening of financial conditions, the drop in the stock market, the strong dollar, higher corporate borrowing rates — that could slow the economy as well as having some real feedback effects.’’
And it remains to be seen how these factors will affect the Fed’s decision to raise interest rates.
“If there is a downturn in the global economy and it spills over to the United States, we could have seen the last interest rate increase for this cycle — that’s a possibility,’’ Yellen said. “I think at this point, the Fed will take a breather, evaluate where the economy is, look to see if downside risks do materialize. Perhaps another interest rate or two, get a little closer to 3 percent, I think that’s perfectly possible but nothing’s baked in the cake in the long-term global interest rates.’’
She also warned that her successor, Jerome Powell, should be careful about raising rates too quickly.
“He shouldn’t tighten so preemptively that he causes a recession or brings this expansion to an end,” Yellen said. “If he’s not a little bit careful, history could repeat itself.”