2013 has been a mixed bag for my family. On the financial front, it has been the best year since 2005. I started my new job the day after Christmas in 2012 and we feel much better about the future. But it has been a year of sorrow too, as Granny became ill and we lost her in October. The holidays weren’t the same without her and we move on to 2014 with an empty chair at the table and heavy hearts.
I will be moving my blog along to 2014 with a tone of guarded optimism. There are plenty of new developments in the area of monetary policy over which to be optimistic: leadership is changing with the exit of Ben Bernanke and appointment of Janet Yellen as the Chairperson of the Federal Reserve, Stanley Fischer has been floated as a possible Vice Chair, and the art of forward guidance seems to be getting closer to mastery. But the conduct of monetary policy as it stands is far from ideal and still poses challenges to ensure that the crisis of 2008 does not repeat itself with the next recession and market turmoil, regardless of source. And so, while there are much brighter spots on the monetary front and plenty of reasons to be hopeful as we ring in the New Year, nothing is certain and I do not necessarily trust the hope. To sum it up I borrow a phrase from Donald Rumsfeld:
There are known knowns; there are things we know that we know. There are known unknowns; that is to say, there are things that we now know we don’t know. But there are also unknown unknowns – there are things we do not know we don’t know.
And I think the New Year shall reveal many aspects of the known and unknown for many different classes of folks from armchair macro-quarterbacks-in-our-own-minds, like me; the hardline inflation hawks who would throw the baby out with the bathwater to lick any inflation anywhere; and the real pros like Nunes and Sumner to name only a couple. Many were certainly surprised by Steve Williamson’s model showing that QE is actually deflationary, and I don’t doubt that there are a few more surprises close at hand.
The battle for hearts and minds with the inflation nutters and bubble fear-mongers is far from over. The key to it, however, seems to be all about asking the right questions or framing things in just the right way. I am still thinking about it; but the high level theme for this blog in 2014 might be something like, “Sure, control inflation – but do not throw the baby out with the bathwater!” Another possibility for a theme might be, “Control inflation – But how,” a phrase a borrowed from Scott Sumner and changed a little to be more fitting to my purpose, “Raise interest rates – But how?” He really stumped me with the framing of his answer to the question about interest rates, but it seemed to satisfy most people as he slipped in the main artery of market monetarism in the core. So I learned a new trick in communications that I hope I can master in the coming year.
In closing, I’d like to wish everyone a very happy and prosperous New Year and hope that it moves all just that much closer to achieving their dreams.
– D –