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Janet Yellen Flashback Highlights

• In a 2017 interview with CNBC, then Fed Chair Janet Yellen called the Fed’s failure to lift inflation to 2% her “single disappointment” and “only regret” as Fed Chair.
• “I consider it an important priority to make sure that inflation doesn’t chronically undershoot our 2 percent objective,” said Yellen to CNBC.
• In 2021, amidst debates over large pandemic relief packages, then Treasury Secretary under President Biden, said the risk of inflation was “small and manageable.”
• Speaking with CNBC in January of 2025, Yellen acknowledged that stimulus spending may have contributed “a little bit” to inflation but attributed the majority of the price spike to pandemic-related supply issues.

Fed’s Inflation Target

The Federal Reserve’s inflation target is 2 percent over the longer run, measured by the annual change in the Personal Consumption Expenditures (PCE) price index.

This target is considered consistent with the Fed’s mandate for maximum employment and price stability. The Fed uses a Flexible Average Inflation Targeting (FAIT) framework, which allows inflation to temporarily deviate from the 2% target as long as it averages 2% over time.

Temporary Deviation

Inflation as measured by 4 indexes has been above target since April of 2021, a mere 53 consecutive months (54 months for its preferred measure, core PCE).

That’s 4.33 years of temporary.

The Illusion of Precision

The Fed has reacted to this by discussing new “inflation target ranges” rather than a fixed target of 2.0 percent.

Reuters reports Fed Could Abandon ‘Illusion of Precision’ With Inflation Range.

one potential alternative to the current target is an inflation range, which some Fed officials have nodded to recently, most notably Atlanta Fed President Raphael Bostic.

In an interview with George Mason University senior research fellow David Beckworth on the Macro Musings podcast this week, Bostic said he would be open to a range in the future.

“Sometimes there’s this illusion of precision, that we can move inflation to the third decimal place. I don’t really think that’s real,” Bostic said.

A Good Start

Bostic said that 1.75% to 2.25% would be a good start.

By that new flexible range, the Fed has only been over target for 52 straight months, down from 53.

Using Core CPI as the Fed’s preferred measure, the Fed has been over target for 52 straight months, down from 54. Hooray!

This now doubt would erase the “illusion of precision”.

Sarcasm aside, if the Fed starts down this path, expect the Fed to keep boosting the upper end of the range.

Pack of Groupthink Charlatans

Yellen looks particularly bad because she made precise statements. But she’s really no worse than any of them.

Former Fed Chair Ben Bernanke launched QE madness to make sure deflation never happens again.

The entire pack of fools thought inflation was transitory all the way to March of 2022.

Recall the Powell-led Fed’s first interest rate hike occurred on March 16, 2022, when the Fed hiked rates to a range of 0.25 percent to 0.50 percent.

It’s instructive to note how high inflation was when the Fed finally reacted.

March 2022 Year-Over-Year Inflation

• CPI: 8.54 percent
• Core CPI: 6.47 percent
• PCE: 6.93 percent
• Core PCE: 5.59 percent

Risk Management Insurance

With inflation the hottest since the mid-1970s, the asymmetric Fed could only muster a measly quarter-point hike. And it was still conducting QE to drive down long-term rates.

The Fed is always slow to hike and fast to cut. Currently, core PCE is 2.91 percent, and the Fed is cutting.

“Think of this as a risk-management cut. There are no risk-free paths. It’s not obvious what to do,” said Powell on September 17 FOMC press conference.

Risk-management insurance is always in favor or lower rates.

The Fundamental Problem

The fundamental problem is the Fed is clueless about inflation.

The Fed only looks at poor measures of consumer inflation while ignoring obvious asset bubbles.

The Illusion of Low Inflation

On average, people spend more money eating out than at home. The BLS has the percentages reversed. And it does not factor in tip inflation at all.

Neither houses, nor property taxes, nor homeowner’s insurance are in the CPI or PCE.

The Fed ignored housing prices. And of course when housing prices rise so do property taxes and homeowner’s insurance.

Our home insurance costs jumped $2,000 a year for two consecutive years (then we switched to a different insurer).

Those in a flood or fire zones likely fared worse.

Consumer Inflation vs Inflation

The Fed does not count things related to home ownership as “consumer inflation” on the basis that homes are a capital expense, not a consumer expense.

So what? Does inflation matter or just consumer inflation?

That’s the key question, and the Fed is clueless. Moreover, the Fed cannot grasp the idea that deflation is a good thing.

BIS Deflation Study

The Bank of International Settlements (BIS) did a historical study and found routine price deflation was not any problem at all.

“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations

Concerns about deflation – falling prices of goods and services – are rooted in the view that it is very costly. We test the historical link between output growth and deflation in a sample covering 140 years for up to 38 economies. The evidence suggests that this link is weak and derives largely from the Great Depression.

Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive.

Once we control for persistent asset price deflations and country-specific average changes in growth rates over the sample periods, persistent goods and services (CPI ) deflations do not appear to be linked in a statistically significant way with slower growth even in the interwar period.

Asset Bubble Deflation

It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive build up of unproductive debt and asset bubbles that eventually collapse.

Fedthink! The Fed Is Incompetent by Design

In case you missed it, please see Fedthink! The Fed Is Incompetent by Design and Can’t Be Fixed

Is the Fed playing politics? Does the Fed know what it’s doing at all?

We are trapped in “Fedthink”, especially the nonsensical proposition that two percent inflation is a good thing despite the fact that the Fed is clueless on how to measure inflation in the first place.

Dear Fed, Please Shut Up

On December 24, 2024 I commented Dear Fed, Please Shut Up Already, Stop the Forward Guidance

Danielle DiMartino Booth claims the Fed should be cutting more, not less. I have a different suggestion.

Since the Fed has no idea where rates should be, it should stop forward guidance.

More accurately, there should not be a Fed at all.

The Next Fed Chair

On July 9, 2025, I threw my hat in the ring: I Officially Announce my Availability to Become the Next Fed Chair

I throw my name into the ring. And I have a plan for what needs to be done. Does anyone else have a plan?

Mish’s 15-Point Fed Plan

1. Explain to the nation why we don’t need a Fed and how independent central banks have created boom-bust cycles of increasing amplitude over time. The main corollary is history shows the one thing worse than independent central banks is a central bank run by politicians, frequently ending in hyperinflation.
2. Surround myself with qualified insiders who understand the Fed but also believe in the mission to end the Fed.
3. Stop paying interest on reserves, phased in over 18 months.
4. Wind down the Fed’s balance sheet totally in 2-3 years.
5. Require that assets available on demand such as checking and savings accounts are truly available on demand. That means demand deposits are parked in overnight US treasuries. This would be phased in over two years. As a result, we would have genuine safekeeping banks.

Click the above link for more details of my plan to end the Fed.

And in case you missed it, please see Is Homeowners Insurance Understated in the CPI? Shop Around!

Our Insurance went up by $2,000. Then another $2,000. Here’s our story.

Don’t worry, the Fed does not count that as inflation. So, it must not matter.

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