If Janet Yellen had not earned her Ph. D. in economics, she could have been a great short-order cook at Waffle House.
Yellen is as long-winded as Bernanke. She lards her speeches with footnotes, just as he did. She is as evasive as Greenspan, but she uses academic jargon and peripheral statistics to do her work.
Her first Jackson Hole speech shows how adept she is.
First, some background. The FED said in December 2012 that an unemployment rate of 6.5% was one of the two benchmarks to use as a way to evaluate when to raise interest rates. The other was CPI growth at 2%.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.
The CPI increase, July 2013 to July 2014, was 2%.
In short, both of the targets have been reached.
So, will the FED raise rates? Which rates? How? The European Central Bank has contracted the monetary base for over a year, and long-term bond rates have fallen. Meanwhile, the short-term ECB rate has dropped like a stone since October 2013.
To avoid dealing with this problem — the #1 policy problem facing the FED — Yellen is waffling. Her speech was pure waffles and syrup.
This post was published at Gary North on August 25, 2014