Fed: We Are Very Happy As Is, But There Is Maybe A Very Small, Microscopic Chance We’ve Missed Something

Last August, the Senate confirmed Richard Clarida for both a position on the Federal Reserve Board of Governors as well as to be installed as its Vice Chairman. Clarida had been chairman of the Economics department at Columbia as well as working for PIMCO where he had served the investment company as its Global Strategic Advisor since 2006. You can already see where this is going.

His last blog post for PIMCO was published in January last year, several months before his nomination to the central bank. Included in it was all the usual stuff.

Going into Federal Reserve Chair Janet Yellen’s 32nd and final meeting, neither we nor the markets expected the Fed to make much news. Of note, however, in its statement after the meeting on 31 January, the Fed acknowledged recent firmer economic data and expressed confidence in inflation moving toward the 2% target later this year.

It is very interesting that in January 2018, Dr. Clarida’s view was for “slightly higher inflation” than what the Fed acknowledged. One year or so later, now as its highest-ranking Economist, his first major project will be to lead an exhaustive study of the Fed’s entire toolkit.

They aren’t quite admitting they really don’t know what they are doing, but, yeah, they are quietly admitting they don’t really know what they are doing. Something isn’t adding up. They all allowed themselves to be bamboozled last year, 2018 not at all finishing up the way it was universally expected.

Late last month, Vice Chairman Clarida appeared at the University of Chicago’s US Monetary Policy Forum in New York. It’s not that officials are unhappy with the monetary policy, he said, it’s just that everything changed around 2008 and maybe that might mean something – in 2019.

Indeed, we believe our existing framework has served us well, helping us effectively achieve our statutorily assigned dual-mandate goals of maximum employment and price stability. Nonetheless, in light of the unprecedented events of the past decade, we believe it is a good time to step back and assess whether, and in what possible ways, we can refine our strategy, tools, and communication practices to achieve and maintain these goals as consistently and robustly as possible.

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Moon Kil Woong 7 months ago Contributor's comment

Good article again. I also agree that the unemployment statistic needs a major revision to show us actual and meaningful data. It has been manipulated so badly it serves as no real guide for anything anymore. Total working population numbers are better than the data they are getting. That definitely shows the "hidden" slack in the labor market.

Gary Anderson 7 months ago Contributor's comment

Helicopter money, not MMT, is the only solution.