So. At the near end of her term as Chair of the Fed, Yellen said in a speech today that the Fed was wrong about inflation.
Make no mistake. This is a spectacular admission for a sitting chairperson to make. And it’s really loaded with implications. It couldn’t have been easy and took a lot of guts. I may just end up admiring Yellen more than I ever realized possible.
I was stunned, however, when she followed up the admission that employment could be pushed higher and that the Fed had not done so out of fear of inflation pressures that never materialized, but that it just wouldn’t be prudent to alter the policy path.
Translated: We didn’t really know what we were doing and we hurt people out of fear. But we’re just going to keep on doing it because we’re still afraid. Hitting the target would be the apocalypse.
I guess when they are a group of hammers everything looks like a nail even when they are aware that they’ve been hammering away on real people.
Speaking of hammering away, I had intended to refrain from as much Fedster bashing as my willpower would allow because this admission is a really big deal. But what should one do when someone admits that they are in a situation where a stint in rehab could make all the difference in the world? Inflationphobia has got to cause a lot of anxiety, and it appears to me that some help is desperately needed here that is beyond the realm of economics. Therefore, I have to suggest that clergy may be the best place to turn as they are rather skilled in waking up the heart with reminders of compassion. If one believes that 2% inflation is the apocalypse and is to be avoided at the cost of historically low lfpr, all the reminders of compassion one can get can’t come soon enough.