Dammit, Janet
According to Einstein, time is affected by gravity. Clocks far from strong gravitational fields run more quickly; those close by run more slowly. We can only assume, then, that Janet Yellen has the density of a neutron star. Under her leadership of the US Federal Reserve, time seems to have stopped altogether.
It is now seven years since the Fed pegged short term interest rates at zero percent. That was in response to the credit crunch that engulfed the world after the collapse of Lehman Brothers. A lot can happen in seven years. The typical newborn, by the age of seven, can talk fluently, has well-developed physical coordination, and can read and write. Evidence of intellectual or kinetic progress at the Fed has been somewhat more limited.
Unlike many central banks, the Federal Reserve is empowered to pursue two specific mandates: stable prices, and maximum employment. The data on jobs looks clear enough: the US unemployment rate stands at just 5.1 percent, or half its level during the height of the financial crisis. (Just ignore the fact that those out of work who are politely called ‘discouraged’ tend to fall out of the statistics after a while, so the true count is some way off.) But the progress on prices – or rather, the lack of it – is even more startling. Despite quadrupling the size of its balance sheet to $4.5 trillion (which incidentally means the Fed is sitting on $4.5 trillion worth of existing bonds), signs of ‘proper’ inflation – in the prices of goods and services, say – are almost invisible.
Given that the experimental policy of Quantitative Easing was always predicated on triggering inflation, the almost complete lack of inflation so far might be regarded as something of a failure.
The neo-Keynesians will no doubt argue that QE has worked, and that Janet and our own Mark Carney simply haven’t done enough of it yet. I have a subtler fear: what if expectations of our central bank policymakers are simply too high ?
– See more at: http://www.cobdencentre.org/2015/10/dammit-janet/#sthash.MdXcwTLh.dpuf
