It’s good news to hear that John Taylor is the latest interviewee in the search for a new Chair of the Fed, if only because it could mean that any further criticism of Warsh is no longer necessary. Warsh may be one of my favorite targets, likely because he’s an easy one to hit. But I’d rather spend time doing something other than whipping a dead horse.
Don’t get me wrong. As far as Taylor is concerned, he has the background and the experience for the job. He is more than qualified, and as Scott Sumner pointed out, he would also be less willing to politicize the Fed, which is a good thing in some respects.
I have a lot of respect for Taylor and do not feel the need for cynicism as far as he is concerned. But I couldn’t pretend to be any less than miles away from agreement with his namesake monetary rule or the idea that inflation is the nominal parameter that the monetary authority should target.
Yesterday, in my usual routine of watching Bloomberg in the morning, there was a discussion of the possibility of Taylor for the top job at the Fed, and one of visuals was a graph of the FF rate compared to the output of the Taylor rule. According to the rule, the FF rate should currently be in the area of 3.25%, which seems problematic and would need to be explained.
In another story, copper and other commodities were rallying on Chinese optimism. Now I understand how a rally in commodities could impact prices of goods all over the planet, since these are global markets for raw materials, and what that would mean for the inflation outlook in the dollar bloc even though there is presently far less optimism. I’ve never been able to make a logical connection to how inflation targeting (IT) comprehends global commodities markets and translates these price movements from strong demand elsewhere into general welfare here, however.
Though I could be missing an important piece of information that would tie them together, with the information I have, I’d guess that the most obvious answer is that IT doesn’t do this, and would likely prove more damaging than helpful and/or complex to manage as a policy with lots of opportunities for error. IT is a house of cards composed of more patches for its shortcomings than is practical, and it’s hard to understand why so many smart people are stuck on it when there are alternatives such as NGDP LT that isn’t as vulnerable to masked measurement error. Perhaps the ivory tower is just a little taller than previously understood.
I have been counting down the days to Yellen’s departure for having run tight policy, and in turn delivering mediocre results. But the sad reality is that the rest of the short list, excepting Cohn, make hawkish Yellen look like a modern Arthur Burns and I’d rather Yellen be reappointed if Cohn is off the table. Never in a million years did I think I’d be saying that I’d prefer Yellen. Of all the monetary economists on the planet, it’s hard to believe that Trump can’t do better than this short list. But I suppose that it is what it is.