A potpourri of recent statements


There seems to be little risk—at least according to these estimates—that inflation would pick up appreciably from its current level solely because unemployment is low. The results shown here call into question the idea that unemployment outcomes are a major factor in driving inflation outcomes in the U.S. economy. Inflation expectations, for instance, are probably a more important determinant of inflation outcomes than unemployment.

For monetary policy purposes, we should not base our notions of what will happen with inflation solely on ideas related to low unemployment. While we certainly want to keep an eye on inflation readings, there seems to be no strong case for being pre-emptive with respect to inflation simply because the unemployment rate is low.

Neel Kashkari

Federal Reserve interest-rate increases may be “doing real harm” to the U.S. economy, which would help explain why inflation is low and job growth has slowed, said Minneapolis Fed President Neel Kashkari, one of the central bank’s most dovish policy makers.

“It’s very possible that our rate hikes over the past 18 months are leading to slower job growth, leaving more people on the sidelines, leading to lower wage growth, and leading to lower inflation and inflation expectations,” Kashkari said Tuesday during a talk at the University of Minnesota in Minneapolis. “These premature rate hikes that we are embarking on, they’re not free, and I think we need to remind ourselves of that.”


For all these reasons, achieving our inflation target on a sustainable basis is likely to require a firming in longer-run inflation expectations–that is, the underlying trend. The key question in my mind is how to achieve an improvement in longer-run inflation expectations to a level that will allow us to achieve our inflation objective. The persistent failure to meet our inflation objective should push us to think broadly about diagnoses and solutions.

John Williams

This is a critical juncture for the American economy. After years of hardship and struggle, we’ve managed to recover from the devastating effects of the housing crash, the foreclosure crisis, and the ensuing financial crisis and Great Recession.

As the economy has transitioned from recovery to ongoing expansion, the role of monetary policy has shifted from getting America back to work to sustaining the expansion for as long as possible. That means gradually ratcheting back on monetary policy stimulus and trying to keep the economy on an even keel.


Because we know that it takes some time for monetary policy to work itself through the economy, we can’t wait until these policy goals are fully met to act,” Mester said in prepared remarks. “We need to assess what incoming information is telling us about where the economy is going over the medium run, and the risks around that medium-run outlook, and set policy appropriately.”


As I noted earlier, I still anticipate that above-trend growth will lead to higher utilization of the economy’s resources, and that, over time, this will help push inflation higher.  Thus, even though inflation is currently somewhat below our longer-run objective, I judge that it is still appropriate to continue to remove monetary policy accommodation gradually. 

This judgment is supported by the fact that financial conditions have eased, rather than tightened, even as the Fed has raised its short-term interest rate target range by 75 basis points since last December.

Those FOMC participants can be divided into two groups. The first, skeptical of Phillips Curve reasoning, is comprised of Bullard, Brainard and Kashkari. The second comprised of Williams, Mester and Dudley, think a rise in inflation is just around the corner.

There are complete falsehoods, like when Williams says the economy has “transitioned from recovery to ongoing expansion”. As the chart indicates, there was never a recovery, just a continuous “submerged” expansion a.k.a. “long depression”.

Moreover, there´s Dudley´s “affection” for the Financial Conditions Index he helped develop when at Goldman. It makes the mistake of “reasoning from a price change”, being worse than meaningless as an indicator of the stance of monetary policy.

Bullard and Brainard believe inflation expectations is all important. Brainard wonders why inflation expectations (what she calls underlying inflation) is significantly lower than immediately before the crisis.

They all make the “mistake” of focusing on interest rates. With that, Brainard, Bullard and Kashkari, for example, fail to provide a “mechanism” that would directly affect inflation expectations.

As the chart indicates, you only get inflation (or inflation expectations) up when you increase the rate of growth of nominal spending (NGDP).

And, as illustrated below, nominal spending growth is far below what´s needed.

With the FOMC composition now up for grabs, how the Fed will behave is anyone´s guess. The last 10 years do not bode well.


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