News Column

Diane Swonk Defines Challenges for Yellen Fed

February 12, 2014

Weak Labor Markets & Risks of Deflation

CHICAGO--(BUSINESS WIRE)-- In the February issue of Themes on the Economy®, Mesirow Financial’s chief economist looks at the challenges facing Janet Yellen as she takes over the helm at the Federal Reserve. Diane Swonk focuses on two concerns: weak labor markets and the risks of deflation. For the full story on what to expect from Federal Reserve policy this year, read the latest newsletter.

More than five years on from the start of the Great Recession, Swonk underlines the sluggish growth of the U.S. economy. “A subpar recovery, combined with ongoing slack in the labor market, raises the risk of deflation, something to avoid at all costs. Falling prices are infinitely more damaging than rising prices, as they prompt hesitation in an economy that needs more, rather than less, risk-taking to grow.”

Diane Swonk estimates that as many as “three million workers… could be lured back into participating in the labor force if employment gains pick up.” The consequent labor market slack puts a cap on take-home pay, which in turn limits consumer spending, the engine of our economy. Swonk explains that “Weak wage gains coupled with lackluster employment growth have resulted in a drop in the share of the economy going to workers… That trend erodes purchasing power.”

The United States is still in better shape than counterparts in Europe, the topic of lively discussion between Chief Economist Diane Swonk and Deputy Chief Economist Adolfo Laurenti this month. For more on that and the nuances of central bank policies, watch a video or readThemes on the Economy for February. Archived issues can be found at

Mesirow Financial is a diversified financial services firm headquartered in Chicago. Founded in 1937, it is an independent, employee-owned firm with approximately 1,200 employees globally. With expertise in Investment Management, Global Markets, Insurance Services and Consulting, Mesirow Financial strives to meet the financial needs of institutions, public sector entities, corporations and individuals. For more information about Mesirow Financial, visit its website at

Mesirow Financial

Karen Nye, 312.595.7147

Source: Mesirow Financial

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