Janet, Help Us Understand It

Janet Yellen, the Chair of the Board of Governors of the Federal Reserve System, has very little explaining left to do.  She presided over her penultimate Federal Open Market Committee (FOMC) meeting, followed by a press conference; her final meeting, coming at the end of January, is not scheduled to include news organizations.  On Wednesday during her last meeting with the press, the Chair helped us understand one of the issues she faced while at the helm: chronically low inflation.

While answering a question posed to her by a reporter, Janet Yellen explained that up until this year, low inflation was understandable coming out of the Great Recession which began a decade ago this month.  She argued that first the economy suffered from tremendous slack in the labor market as the many folks who were pushed to the status of unemployed during the last downturn continued being hired once the economy’s keel began to even.  Next, there was a substantial drop in the price of oil keeping inflation low.  Finally, beginning in 2014 there was a marked appreciation in the dollar which helped keep prices from rising too quickly.  This year she blamed a sequence of negative surprises, including among other things, falling cell phone plans.  While she admitted there could be some issues with the assumptions of the FOMC members, she continues to expect the Fed will hit its explicit inflation target of 2.0 percent in the years ahead.

Making monetary policy decisions is a difficult endeavor; a dynamic economy like America's has too many moving parts to create a consistently accurate model.  Nonetheless, each time the Federal Reserve acts or chooses to leave things untouched, pundits immediately begin criticizing, arguing unprovable counterfactuals.  Our economic system was nearly brought to its knees during the financial crisis which started a decade ago, and Janet Yellen served as the Vice-Chair and then Chair of the Board of Governors of the Federal Reserve System during most of the subsequent recovery.  Some will choose to remember her as having made many missteps which caused price appreciation to fall short of stated goals, while others sing her praises.  Here at Atlas, we simply bid her farewell, believing she gave a concerted effort during a difficult economic period and expect history will judge her favorably.  

Madam Chair, thank you.