What’s Janet Yellen About?

February 12th, 2013 at 10:00 pm

Just a bit more of this great speech from Federal Reserve Vice-Chair Janet Yellen yesterday.

First, her comments were well placed, coming a day before tonight’s SOTU wherein the President is expected to discuss measures that might, you know, help the economy instead of hurting it.  The headwinds she mentions are all still active and especially if the sequester kicks in, I fear the CBO’s forecast for unemployment this year—basically stuck at 8%–will be correct.

Second, you gotta love this opening:

Thank you for the opportunity to speak to you today about the Federal Reserve’s efforts to strengthen the recovery and pursue a goal that it shares with the labor movement: maximum employment.

You don’t always think about the Fed and the labor movement sharing goals, but there it is.

Third, her figure one is a potent reminder that we’re actually doing considerably worse than past history would predict, which motivates the headwinds discussion.   Why is the recovery so damn sluggish?

Housing: not only did the imploding bubble cost trillions in lost wealth, but the financial damage to banks and balance sheets means the economy is less reactive to the low interest rates resulting from the Fed’s aggressive monetary policy.  Employment associated with home building also took a long-term hit.  I’ve always maintained that if you’ve gotta have a bubble, try not to make a housing bubble.

Discretionary spending: Muy importante, as I stressed this AM.  Note that the figure accounts for the stimulative or contractionary impact of all levels of government, so it captures contractionary actions by states and locals.  Again, I’ve always maintained that we hit back hard against the Great Recession but we didn’t hit back long.  And, of course, this is the area where we’re in the most danger right now with sequester looming, austerity economics perversely in ascendency, and outside of the Fed, and maybe the President in a few hours, few defenders of what’s right and wrong here.

–A grab bag of other stuff that’s just gone badly: Europe, household’s confidence about things getting better, which feeds back in ways that actually help things get better.

I’m left with two thoughts after giving her speech a careful read.  One, it’s truly remarkable how the only high-ranking officials talking with such clarity and passion about the plight of struggling households are unelected technocrats at the Fed.

Second, I very much hope that after tonight’s speech, the administration engages in this argument with the same intensity as Yellen.  I get that it may well be fruitless given the gridlock and anti-evidentiary spirit of the moment.  But this is the fight to have and somebody else has got to start yellen about it.

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One comment in reply to "What’s Janet Yellen About?"

  1. Ken Houghton says:

    “I fear the CBO’s forecast for unemployment this year—basically stuck at 8%–will be correct.”

    As opposed to those of us who see that we will be more than four years into “NBER recovery” by then, and therefore suspect the CBO forecast is the optimistic version of events (though a substantial rise in NILF would dampen U-3).