Maybe it’s just me, but it seems like monetary policy has irredeemably succumbed to politics when research findings are labeled in correlation to either hawkish or dovish.
I took a look at the paper by Vasco Cúrdia from The San Fran Fed that is supposedly a dovish bombshell according to the headline on CNBC. And it isn’t a dovish bombshell. No, a dovish bombshell would be a paper that explains the virtues of something for nothing, creating an opportunity society out of thin air, and the ability to tax cash only activities and foreigners who currently use USD liquidity services virtually for free (Does anyone really think “safe havens” should be free??). This paper isn’t that or even close.
This paper examines the approximate level of the Wicksellian interest rate compared to short term nominal interest rates. And here is what it says in the conclusion:
This Letter suggests that the natural rate of interest is expected to remain below its long-run level for some time. This implies that low interest rates over the next few years are consistent with the most efficient use of resources and stable inflation. The analysis also finds that the output gap is expected to remain negative even after the natural rate is close to its long-run level.
Translated into ‘dajeeps’ speak, it says that very low nominal interest rates are consistent with the natural interest rate, and it will stay what way for a few years. And, oh, by the way, we will also have an output gap for as long as the forecast sample.
I hate talking about MP in terms of interest rates, but if I were to do so, this would be the way to go because raising or lowering short term nominal rates by the Fed has consequences in the frictions it generates with the natural interest rate. And there really isn’t anything dovish here. It’s basic macro and simply to the point of showing that the ZLB is the new normal unless the Fed wants to make things like the output gap worse and see inflation move in the wrong direction with premature lift-off. Attaching labels to it implies propaganda, which it certainly isn’t; there is no ambiguous weasel verbiage present, e.g., “We have to raise interest rates now to keep from having to do so abruptly later,” (so where’s the proof that they will have to do so abruptly later??). And the best part about it is that if the hawks who are pretty much obsolete in a global deflationary environment have an issue with it, they can just argue with Wicksell’s scholarship.
To me this paper has to be the most sober assessment of the current situation I’ve seen come out of any Fed research body in at least a decade. And it represents much more than a momentary dovish glance because just think about the large pile of monetary misjudgments over the last year: the taper, hawkish nonsense about big inflation coming and too many people having jobs, and cost-push inflation requiring a rate rise in earnest – that they all, except for the most idealist of hawks, now have to back away from. It’s a huge credibility problem at best or at worst, they will just continue on heedless of warnings that come from macro 101 to the detriment of us all.
CNBC can cheapen the message with labels if they want to. But that is really only shooting the messenger and does nothing at all for all of the more average people in the ant-farm after the unaccountable bureaucrats have their way in kicking us back over the cliff just because “it’s time.”