Monday, June 2, 2014

Was Peter Klein Correct That There Were Better Establishment Candidates to Put on the Fed Than Stanley Fischer?

A little over a week ago, economist Peter Klein made the case that there were better candidates that President Obama could have nominated for a position on the Federal Reserve Board of Governors than Stanley Fischer.

Klein argued that Fischer's " monetary policy views are largely indistinguishable from those of Ben Bernanke and Janet Yellen. He strongly favors the current Fed policy of keeping short-term interest rates near zero..."

Klein went on:
If the Fed is supposed to provide “scientific,” politically neutral analysis and administration, wouldn’t you expect some diversity on the Board?
Of course, I’m not expecting the Fed to appoint an Austrian economist as Governor. But there are a number of plausible, politically feasible candidates who would have provided balance to Yellen’s somewhat extreme views. John Taylor is the most obvious candidate...
And now, as if on cue, WSJ's Jon Hisenrath is out with an interview with Taylor, where Taylor calls for a major hike in interest rates, something that Yellen, Fischer and company are unlikely to do.:
John Taylor: Interest Rates Should Already Be Higher

We caught up with Stanford University professor John Taylor at a Hoover Institution conference Friday on the Federal Reserve’s 100-year anniversary.

Our main topic of conversation, which is being hotly debated in markets and at the Fed, was where short-term interest rates should be in the years ahead, after the Fed lifts them from zero...

He’s an authority on the subject, having authored a widely followed economic formula known as the Taylor rule, which uses a few basic calculations to explain how much interest rates should change based on deviations in inflation and economic slack. Using his rule, Mr. Taylor says short-term rates should already be above 1%, not pinned near zero.


  1. No way are interest rates going to be raised to even 0.75% (this will blow up the HY corp credit market and the E in P/E which is being goosed up by debt will take a big hit)

  2. With due respect for Mr. Taylor, why should interest rates "already be above 1%"? Would 1.2% suffice? 2%? That he has some fancy formula doesn't impress me. Climatologists have really complex algorithms predicting global temperatures. Very impressive, yet monumentally wrong for more than a decade. Fancy does not equate to accurate.

    Interest rates should be set by the market, not by a monetary Politburo using rigged statistics and public propaganda. Interest rates should reflect the pool of available savings and any risks associated with failure to pay back debt. They don't, nor will they as long as the Fed's counterfeiting operation is allowed to defraud the public.

    This really isn't that hard to figure out. Central planning sucks. Why should centrally planning our money be any different?

  3. Oh, How The Canons of Decency
    Have Changed Over Time
    There was a time when policy that accepts inflation was seen for what it is: 'Gutting' the economy's small 'fish' & the savers.
    "If a policy of active or permissive inflation is to be a fact, then we can rescue the shreds of our self-respect only by announcing the policy. That is the least of the canons of decency that should prevail. We should have the decency to say to the money saver, 'Hold still, Little Fish! All we intend to do is gut you.' "
    Malcolm Bryan, President of Atlanta Federal Reserve Bank, 1956
    Posted by Cliff Küle at 6/02/2014 04:53:00 PM No comments: