Sunday, March 2, 2014

Janet Yellen on the U.S. Economy and Bitcoin

  • During testimony to the Senate Banking Committee, Federal Reserve Chair Janet Yellen said”a number of data releases have pointed to softer spending than many analysts had expected. Part of that softness may reflect adverse weather conditions, but at this point, it's difficult to discern exactly how much. In the weeks and months ahead, my colleagues and I will be attentive to signals that indicate whether the recovery is progressing in line with our earlier expectations.” 
  • Note on Friday, the U.S. Commerce Department said the economy grew by 2.4% during the fourth quarter of 2013, which was down from its initial estimate of 3.2%.  This rate is also slower than the 4.1% growth reported for the third quarter of 2013.   Factors driving the results included weak retail sales, inventory adjustments and a slightly less robust trade balance.
  • On Bitcoin, Yellen said, “Bitcoin is a payment innovation that’s taking place outside the banking industry. To the best of my knowledge, there’s no intersection at all, in any way, between Bitcoin and banks that the Federal Reserve has the ability to supervise and regulate. So the Fed doesn’t have authority to supervise or regulate Bitcoin in anyway” but “it would be appropriate for Congress to ask questions about what the right legal structure would be for digital currencies.”
MY TAKE
  • Regarding the U.S. economy – Recent economic data has been mixed and, as Yellen highlights, it is hard to separate the impact of an unusually severe winter from a potentially less robust economic trend.  Given that unemployment data for December and January were weak, the February jobs report, to be released on Friday may provide some insights on the impact of weather or more fundamental issues. 
  • Regarding Bitcoin – Amid the heightened level of media attention, the digital currency market, including Bitcoin, is at an early (perhaps prototype) stage. Much work remains in the development of appropriate regulatory oversight as well as technology infrastructure.  Note: the total value of Bitcoins in circulation is about $7 billion, less than half of the $19 billion that Facebook is paying for What’s App, and small fraction of the over$10 trillion in U.S. dollars in circulation.

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