Central bankers and their economists had their annual retreat to Jackson Hole Wyoming this past week. Given all of their self-proclaimed success in curing the economic crisis with their Zero Interest Rate Policy (ZIRP) and Quantitative Easing (QE). You would think that the event would have been a big celebration.
However, as we got closer and closer to the Fed’s target unemployment rate of 6.5% the more we have been hearing from Janet Yellen about “labor market imperfections.” She has changed her tune and instead of touting the decreases in the unemployment rate, she is talking about all the people working part-time when they would prefer to work full time and the decline in the labor participation rate. In truth the Fed did not fix the economy. In other words, she is searching for a justification to continue the money printing if the bubbles start leaking again. Several papers were presented about the problems of labor markets.
In contrast, others were concerned about the emerging price inflation:
• Martin Feldstein, Harvard economics professor, chairman of the Council of Economic Advisers under President Ronald Reagan:
“I wish the Fed would be more explicit about being concerned about inflation. They were slow to communicate about inflation. Yellen gave a speech at the (International Monetary Fund) a few weeks ago in which she acknowledged that there were risks of financial instabilities but said that’s not going to change our monetary policy.
“My sense is there’s probably more inflation in the pipeline and closer (than Yellen thinks).
MORE: Yellen talks labor market slack at Jackson Hole
“Her eyes are on the underutilized labor resources. She’d like to be able to continue to bring that down.
“We may see inflation sooner than she thinks we’re going to see, and I think if that happens, then I think they’ll move the date (to raise rates) forward.”
Others, like Yellen, were less concerned with price inflation and more concerned with unemployment:
• William Spriggs, chief economist for the AFL-CIO, Howard University economics professor, former assistant labor secretary under President Barack Obama:
“I think (the Fed is) still thinking too much in the framework of, ‘We’re waiting for inflation.’ I think they have to re-configure this. The cost of unemployment has gone up, and so in making that choice between whether I raise interest rates to stir the economy or whether I pursue full employment, we just have to say: ‘You know what? Inflation doesn’t cost as much as unemployment.’
“(Yellen) is forcing them to be nuanced, so they can’t get out of talking about this in a more nuanced way.
“If, for a little while, you have 3% or 4% inflation or maybe even 4.5% inflation, that’s fine. Because we are so far away from full unemployment.
“But if you (raise interest rates), it’s going to be arbitrary. It’s going to be very broad. It’s going to hurt managers, it’s going to hurt professionals, it’s going to hurt everyone.”
“This is real damage to real people. You have to factor that cost. This is not free.”
It would seem that the rosy picture of the Fed fixing the economy does not look as rosy to central bankers themselves once they have supposedly fixed the economy!
As quotes in the USA Today.