Policy: Labor

The week ahead in economics: Janet Yellen takes over, jobs and the budget

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Jobs,Labor,PennAve,Joseph Lawler,Economy,Federal Reserve,Budgets and Deficits,Janet Yellen

Janet Yellen will be sworn in as the chairwoman of the Federal Reserve at 9 a.m. on Monday morning, making her the most important economic policymaker and one of the most powerful women in the world.

As she takes up her office amid a U.S. economy that is still struggling to recover from the recession that officially began in 2007, Yellen likely will be keeping an eye on the experiment her counterpart is conducting in Japan.

Japanese Prime Minister Shinzo Abe came to office in December 2012 promising bold economic reform in the form of "three arrows”: monetary stimulus to avoid deflation and boost trade by lowering the value of the Yen, fiscal expansion, and structural reforms.

In January 2013, Abe’s government and the nominally independent Bank of Japan announced that they would coordinate to end Japan’s decade-plus of deflation and stagnant growth. Subsequently, in April, Abe’s newly installed Bank of Japan governor Haruhiko Kuroda announced a program of quantitative easing equivalent to $1.4 trillion – an amount that would double Japan’s money supply – to hit the central bank’s 2 percent inflation target.

A year after his installment, Abe is starting to see the early results of his program of "Abenomics."

Late last week, the government announced that inflation accelerated in December, rising to 1.6 percent from outright deflation earlier in the year – a sign that Abe and Kuroda are on the right path to avoid deflation:



The uptick in inflation comes with the background conditions that Abe hoped for, namely rising industrial production and what appears to be an improving labor market. Bloomberg reported that the number of job openings per job seeker rose above one in January for the first time since 2007. Furthermore, gross domestic product growth began to edge up throughout 2013:



It’s still too early to draw any conclusions from Abenomics. And the U.S., which has avoided the outright deflation of Japan and the double-dip recession of Europe, faces a different situation than Japan. Nevertheless, Japan will provide a helpful example to Yellen as the Fed attempts to wind down its own experiment with quantitative easing without mishap.

Yellen will be sworn in Monday morning by her colleague on the Board of Governors of the Federal Reserve System, Daniel Tarullo.

Also on Monday morning, Treasury Secretary Jack Lew will speak at the Bipartisan Policy Center about the debt ceiling. The statutory debt limit, which was suspended in the deal to end the government shutdown in October, will become binding on Feb. 7 and Lew has said it must be raised by late February to avoid a debt default. The Obama administration has said it will refuse to negotiate with the GOP over raising the debt ceiling. House Majority Leader Eric Cantor, however, said Sunday that he is "hopeful that the president and the Senate will work with us in the House to actually do what has typically been done with debt ceilings, which is making some progress towards addressing the spending problem in Washington."

On Tuesday, the Congressional Budget Office will provide an updated look at the state of fiscal affairs in the U.S. with its release of the Budget and Economic Outlook, which will provide economic and budgetary projects through 2024.

On Friday, the Bureau of Labor Statistics will release the jobs report for February. Analysts are expecting about 180,000 new jobs for the month, following a disappointing December reading of just 74,000. It is also possible that December's number will be revised upward.

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