Janet Yellen: I Don’t Understand Trump’s Trade Policies

A central focus of the Trump administration has been to reduce the U.S. trade deficit and to force our trading partners – mostly China – to eliminate what he claims to be unfair trade practices. Yet former Fed Chair Janet Yellen doesn’t understand what Trump is doing.

“I don’t understand Trump’s priorities with respect to trade,” she said.

Yellen was the chair of the Fed from 2014 to 2018, overlapping both the Obama and Trump presidencies. She is now a distinguished fellow in residence at the Brookings Institution, a Washington, D.C.-based think tank.

She was a keynote speaker at the Schwab IMPACT conference on October 30 in Washington.

I’ll come back to Yellen’s thoughts on President Trump, but first let’s review what she said about the capital markets, the economy and monetary policy.

Putting the market volatility in context

Recent market volatility is a response to a number of uncertainties, according to Yellen, including trade relations with China, which affect the global economic outlook. The market is trying to figure out where rates are heading, she said, particularly in the long term. “Movements in rates have a significant effect on stocks,” Yellen said.

Even with the recent correction, the market’s P/E and Shiller CAPE ratios are still “quite high by historical standards,” she said.

But stocks are not patently overvalued, according to Yellen. Given that rates are still low and will normalize at a lower-than-average level, higher valuations can be justified.

If the economic expansion continues through July, she said, it will be the longest in American history. But is a recession imminent?