Saturday, June 6, 2009

San Francisco Fed President Adjusts Her Micro-Management by 0.5%

Federal Reserve Bank of San Francisco President Janet Yellen said Friday that after previously favoring 1.5% as an inflation objective for the Fed, she would now like to see inflation in the 2% range over the long run.

“I think if I now had to write down a number, I’d probably write 2%,” Yellen said at a Fed conference.

The Fed does not appear to be able to control long rates at all, and the economy just went through a major crisis, which occurred under the watchful eye of the Fed, yet Yellen thinks the inflation rate can be tweaked by 50 basis points. Oh yeah. Do we need anymore evidence that Yellen is completely clueless to the double digit inflation ahead?


  1. Wenzel,

    I am confused by this post. Do you define inflation as rising prices?

  2. I generally dfferentiate between price inflation and monetary inflation. Yellen is discussing price inflation, although she is not clear about it.

    Most Fed people will use "inflation" when they mean "price inflation"

  3. Wenzel,

    That's what I figured, but in this post you didn't differentiate so I was confused. Maybe you think that it is implicit which person is talking about which concept, but I think as a service to your readers who may not be as sound with Austrian economic concepts such as their definition of inflation, you may want to make an extra effort to detail which one you're referring to in your writing. I think it's a really important concept to educate people on. But it's your blog so I won't tell you how to do it, just offering a suggestion.

    Also, I personally don't like to even say "price inflation" because I think it's a confusing way to picture things. The word inflation works in regards to a physical concept like a supply of money or credit because one can increase the number of monies or credits available, thus inflation. This is similar to how one inflates a balloon by increasing the number of air molecules inside of the balloon.

    With prices however, there really isn't anything to inflate. Prices don't exist and have no physical ancillary... you can't grab a price, touch a price, move a price like you could (theoretically) with a piece of money or a bill of credit. A price is an abstract accounting concept that we use to simplify our transactions. It just seems to me silly to refer to this as an "inflation of price" because you are not increasing the number of prices. By my logic, "price inflation" would be something more akin to going from having two prices in an economy, to seven. Of course, that's a pretty useless thing to keep track of, but, I hope you see my point.

    My favored language mechanic is simply to say "price increases." However, I understand this has become a modern, popular convention. I just think it does more to confuse and obfuscate whose responsible and it mixes cause with effect... not good in my mind.

    Thank you