Every month, a parade of Fed governors offer their views on the economy in various speaking outlets. In those speeches, the Fed presidents may seem diverse in opinion but it’s an orchestrated charade.

When the Fed meets to set monetary policy, dissents are measures by months, but by years. The last dissent at a meeting was in 2005.

A Fear of Dissent or Something Else?

WSJ columnist Joseph Sternberg says A Fear of Dissent Haunts the Federal Reserve

A member of the Fed’s Board of Governors dissented from the FOMC’s decision to cut its target short-term interest rate by half a percentage point. Gov. Michelle Bowman would have preferred a quarter-point cut. It’s the first time since September 2005 that a member of the Fed’s Washington-based board has disagreed formally with a policy decision.

The last dissenting vote from a governor before September 2005 came in September 2002, and the one before that was in November 1995.

The FOMC has come to rely for intellectual diversity on the presidents of the 12 regional Federal Reserve Banks. The president of the New York Fed always gets a vote, and the others take year-long turns filling four slots alongside the seven Fed governors in voting on the FOMC. Regional bank presidents cast dissenting votes more often than members of the Board of Governors, but often they cast a lone contrary vote. The last time two regional bank presidents voted against an FOMC decision was in September 2020, when Robert Kaplan and Neel Kashkari disagreed with the wording of the statement but not the policy.

Whatever the reason, this is unhealthy—and dangerous to the Fed’s credibility and independence. Voters might well start to wonder why their central bank isn’t hosting a more open debate about its recent errors and how to remedy them. Meanwhile, if the Fed can’t demonstrate a capacity for vigorous internal dissent, politicians may conclude they must force such a debate on the bank via greater political meddling.

Something Else

There is clearly pressure on reaching consensus. But when and why did this happen?

Contrary to widespread myth, diversity does not have anything to do with race, sex, or where one went to college.

Diversity is in thinking, not race.

Unfortunately, every person on the Fed is trained and believes in the same economic nonsense including the preposterous idea that 2 percent inflation is needed.

Year in and year out they all say the same stupid things about inflation expectations and the Phillips cure.

Judy Shelton Flashback

On January 19, 2020, I reported Trump Nominates Gold Advocate Judy Shelton for the Fed

Judy Shelton is an American economic advisor to President Donald Trump. She is known for her advocacy for a return to the gold standard and for her criticisms of the Federal Reserve.

Please consider Shelton Slams Bank’s ‘Soviet’ Power Over Markets

“How can a dozen, slightly less than a dozen, people meeting eight times a year, decide what the cost of capital should be versus some kind of organically, market supply determined rate? The Fed is not omniscient. They don’t know what the right rate should be. How could anyone?” said Shelton.

That paragraph is all you need to read to understand Shelton is an exceptionally good nomination and far more competent than anyone on the Fed.

Diversity at the Fed Needed

On January 3 2020, I commented Allegedly, There is a Gender Gap in Economics

Instead of more women or blacks on the Fed, I suggest we try actual diversity of economic opinion and not gender for gender’s sake.

What’s most needed on the Fed is an Austrian economist who proposes dissolving it. That would be diversity. Instead, expect more group think nonsense about race and the Phillips Curve.

Good Ole Boy Network

To become a Fed president you have to think, believe, and act like a good ole boy. Janet Yellen is best not thought of as a woman, but rather a good ole boy.

If only Einstein had only been a black or female, his theories would now have had more meaning.

What Happened to Shelton?

At confirmation, every Democrat voted against her. A couple of weak Republican senators did not vote for Shelton. Nobody really wants sound money.

Unfortunately, Trump never pressed the issue. Republicans still had the votes but one one of them got Covid and passage failed by a single vote.

Vice President Mike Pence would have cast the tie-breaking vote.

Inflation Expectations

Every meeting, Fed Chair Jerome Powell comments on inflation expectations. So did Janet Yellen.

Inflation expectations cannot possibly matter because at least 80 percent of the CPI is inelastic.

People will not double up on rent in advance if they think rent will go up. Similarly they will not double up on gasoline, medical operations, etc.

And among the elastic, items people won’t take two vacations this year an none the next if they think hotel costs will rise.

Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?)

Please consider Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?)

Mainstream economics is replete with ideas that “everyone knows” to be true, but that are actually arrant nonsense.

The direct evidence for an expected inflation channel was never very strong. Most empirical tests concerned themselves with the proposition that there was no permanent Phillips curve tradeoff, in the sense that the coefficients on lagged inflation in an inflation equation summed to one.

Finally, even if one is willing to entertain the idea that in some vague, mushy sense concern over costs and demand by individual firms facing fixed prices leads to a dependence of aggregate inflation on expected inflation, we are still left with the conclusion that short-run expectations should be the ones that are most important.

One might also be uneasy about policymakers’ relying too heavily on the assumption that inflation’s long-run trend will remain stable going forward so long as measured long-run inflation expectations do. Even if every one of my preceding arguments is judged by the reader to be completely unconvincing, it nevertheless remains the case that we have nothing better than circumstantial evidence for a relationship between long-run expected inflation and inflation’s longrun trend, and no evidence at all about what might be required to keep that trend fixed (beyond that it might involve keeping actual inflation from moving up too much above two percent on a sustained basis).

[Mish note: The last two paragraphs are a direct criticism of Fed policy as practiced by every Fed chair and people dismiss these reports without reading. The next paragraph is a hoot as well.]

Or would you justify the view that expectations “matter” by pointing to the inflation experience of the 1960s and 1970s, even though that period provides no actual evidence that workers or firms tried to boost their wages or raise their prices in anticipation of future price or cost changes?

The Fed study was not only accurate, it was funny, and replete with humorous quotes.

Amusing Quotes

• Expectations are by definition a force that that you intuitively feel must be ever present and very important but which somehow you are never allowed to observe directly: R. M. Solow (1979)
• Pure economics has a remarkable way of pulling rabbits out of a hat. It is fascinating to try to discover how the rabbits got in; for those of us who do not believe in magic must be convinced that they got in somehow: J. R. Hicks (1946)
• Don’t interfere with fairy tales if you want to live happily ever after: F. M. Fisher (1984)
• Few things are harder to put up with than the annoyance of a good example: Mark Twain, The Tragedy of Pudd’nhead Wilson (1894)

Do Inflation Expectations Matter?

I have discussed inflation expectations at least eight times over the years, most recently in How Do Inflation Expectations Impact Wages and Future Consumer Inflation?

Phillip’s Curve Nonsense

Also see Yet Another Fed Study Concludes Phillips Curve is Nonsense

Despite the Fed’s own studies, every Fed president still believes in the Phillip’s Curve and Inflation Expectations.

They have been trained to believe nonsesne.

Irony of the Year

When is the last time you heard any Fed president discuss sound money? Heck, can anyone even recall the Fed discussing M2 money supply at all? Gold?

We have a Fed monetary policy committee that never discusses money, how it’s created, or its role in inflation!

Instead, every month we are treated to an infinite barrage of discredited ideas like inflation expectations, two percent inflation, and the Phillips Curve.

It’s groupthink at its finest.

The Fed does not discuss money for a reason that should be easy to figure out: You have to be brainwashed to be this stupid. And you have to believe like they do to become a Fed president.

Groupthink, not fear of dissent, explains the lack of dissents.

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