Monday, July 29, 2013

Alan Blinder: Janet Yellen Would Be a Mad Money Printer as Fed Chairman

Well, Blinder didn't put it exactly in those words, but in an op-ed piece for WSJ, Janet Yellen Is the Best Fed Choice, he did say (my bold):
In her first stint at the central bank, she helped steer monetary policy toward what was called the "perfect soft landing" in 1996—meaning that the Fed tightened considerably to avoid inflationary dangers in 1994-95, then eased up in time to "set the economy down" gently on the full employment "runway." If that sounds easy, it's not. The history of central banking, both here and elsewhere, is replete with crash landings.

Alan Greenspan, who was in charge at the time, deserves most of the credit for the feat, but Ms. Yellen played an instrumental supporting role. The transcripts of the Federal Open Market Committee meetings from back then show her urging her colleagues not to overdo tightening.
Shortly thereafter, she led the "2% side" in an unusual FOMC debate over whether the Fed should be shooting for 2% inflation or for zero—as measured by our imperfect statistics. Two percent is now the Fed's official policy.
  I remember reading with dismay the statement the FOMC issued right after its Aug. 7, 2007, meeting. It said, in part, "the economy seems likely to continue to expand at a moderate pace over coming quarters," and "the Committee's predominant policy concern remains the risk that inflation will fail to moderate." Oh my, I wondered at the time. What are they thinking? 
We now know, from the public transcript of that meeting, that Ms. Yellen argued against designating inflation the Fed's "predominant policy concern" under such dire circumstances. In her words: "that's like saying . . . that, yes, we see greater downside risk [to growth], but we don't care; we remain totally focused on inflation. That bothers me."
She lost the debate that day, but she was right. These kinds of incidents, by the way, get her branded a "dove." 

There are no real good candidates, among the names being mentioned to replace Ben Bernanke as head of the Fed, but I suspect Yellen would be the most aggressive money printer of the bunch. The lady seems to mainline green ink.

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