Sunday, March 14, 2010

Janet as Number Two

Janet Yellen to #2 at Fed. I don't know enough about Janet Yellen to give an expert opinion, but there are two things I don't like about the choice. The first is her age -- 64 -- and no, it's not just because I'm biased against old people for important positions, although I do think that experience wins out over adaptability/intellect too much for positions such as this. I would rather they pick a younger, up-and-coming liberal Democratic economist who could use the position to augment her/his resume and gain experience for possible appointments to other offices later on, such as Fed Chair.

Second knock against her is that, in the past year or so, I don't recall her disagreeing with Fed policy in the minutes. I felt very strongly last summer that the risks between inflation and unemployment were unbalanced, with continued high unemployment being a significant risk, and inflation being low risk. Janet Yellen was apparently more worried about inflation. Unfortunately, I turned out to be correct and she turned out to be wrong.

Having said all that, she is known as an inflation dove, she is a Democrat, and she's married to George Akerlof, who's just awesome. The problem is that I'm not familiar with any of the evidence which suggests she's an inflation dove. She normally agrees with the rest of the FOMC. According to Larry Meyer: "The final question is whether Janet is really a dove. Let me tell you a story. Janet and I held very similar views when we were colleagues on the Committee, despite the fact that I was immediately viewed as a hawk and she was already viewed as a dove. (I thought of myself at the time as being a "hawkish dove.") In any case, when it comes to ensuring price stability and maintaining well-anchored inflation expectations, there are no doves on the Committee."

Maybe she'll surprise me, but at present, she doesn't strike me as the most inspired choice.


  1. I don't see her dovishness either.

    She often talks about how we are facing deflationary pressure, that we need to stabilize growth by a higher target, that she would vote for a negative rate if we could etc etc.

    But, I don't see this inflation dove reflected in her actual policy statements and actions. The most dovish statements I've seen from her are ones calling for a low federal funds rate for an while. But this was news to me that a low federal funds rate being held for an extended period of time was particularly controversial.

    On that note, don't we also know by now that commitment to higher inflation in the future is likely to bring about a recovery, lest we allow ourselves to become Japan? So what target is Yellen looking at? In a WSJ article from June 2009 she argued that instead of her previously preferred 1.5% inflation target, she's now thinks a 2% inflation target is more appropriate. I don't consider a 2% inflation target anything extraordinary in "normal" times, let alone last June, so I don't see the dove in her. She then stated in her 2010 speech that a 2% target was appropriate for the "long term" so I'm going to assume she hasn't revised that target upward since June to help spur the economy. Despite this evidence though, the media somehow thinks we are about to get someone advocating a 6% inflation target. I also decided to look at some of her speeches a few days ago. I'm not impressed. Also, in her most recent speech, she talks about the purchasing of mortgage-backed securities and emergency lending programs and basically concludes that the economy is strong enough that those aren't particularly necessary any longer and she gave no nod to any support for expansion of them. She also never seems to talk about possible depreciation of the dollar as a means to spur recovery. All the while through out these speeches she believes everyone is too optimistic and the economy is going to be crappy and sluggish for some time. But basically concludes what the Fed is doing right now is great, that we just need to keep rates low and assure the market we have a good "exist strategy."

    I also have one general rule. If a Federal Reserve official is giving a speech about how crappy the economy is, and in those speeches if I see "price stability" mentioned over a dozen times - it's safe to say they are worthless. Her speeches are littered with this.

    I don't see this inflation dove. Maybe she is a dove compared to the people on the FOMC currently, but she looks like she only supports the weakest of policies. Perhaps she needs to read Bernanke's recommendations on what Japan needed to do ...

  2. Right on... The more I think and hear about Yellen, the less I like. Let's just hope the economy continues to recover so the pick doesn't matter...

    And, WTF are those other two Fed nominees the White House has? Not even trying to fill those positions looks to me like criminal negligence at this point...

  3. A friend of mine just emailed me one of your articles from a while back. I read that one a few more. Really enjoy your blog. Thanks