Gene Epstein of Barron’s uses the occasion of Yom Kippur to focus on recent economic sins.
In this annual Yom Kippur column on economic sins of omission and commission in need of atonement, Federal Reserve Chair Janet Yellen rates high on the list of sinners. “Yellen should atone for the sin of pride,” observes Michael T. Lewis of Free Market Inc. “She apparently believes her ultra-accommodative monetary policy is the main pillar of the economy. And she implicitly rejects the idea that the economy can stand or thrive without her help.”
The FMI economist himself would atone, as forecaster, for the “sin of gullibility.” Lewis was one of many who predicted that Yellen’s Federal Open Market Committee would raise the interest rate on federal funds at its mid-September meeting. Instead, the FOMC decided to stand pat.
“Many forecasters, including me,” admits Lewis, “should atone for believing, in Yellen’s case, that a dove could be a hawk just because she coos aggressively now and again.”
Applied Global Macro Research senior partner Carsten Valgreen notes the sinful absurdity of maintaining a 0% to 0.25% target on federal funds when the fundamentals normally would call for about 3%.
“The labor market has already crossed into tight territory, according to most measures,” observes Valgreen, “including the FOMC’s own Labor Market Conditions Index.”
As for the committee’s inflation target of 2%, the six-month trend through August in the core consumer price index—the CPI excluding food and energy—ran at an annualized 2%. And the six-month trend through July for the core personal-consumption deflator was an annualized 1.7%. That should be close enough to satisfy the 2% criterion.
As Valgreen observes, “The idea that you can micromanage inflation is weird and dangerous.”
