Fed Credibility

Below are several comments from various Fed officials concerning the state of the economy. It is quite clear that the Fed is losing its grip on things and its continued credibility with regard to policy going forward is tenuous at best.

That being said, the Fed could do much worse, regardless if it exhibits any mens rea considering what it believes "best" policy should be...the only thing it needs is control of commodity prices (so it can stop arguing about core deflation and getting tongue tied by its econ-wonk remarks focusing on why rising food and fuel prices are not "real" inflation)


Feb. 25 (Bloomberg) -- Federal Reserve Vice Chairman
Janet Yellen said the central bank could use communications to
make policy more accommodative, lower unemployment and raise the
rate of inflation if financial markets expected a tightening of
policy before the Fed intended.
If policy makers expected the Fed’s target rate to stay
lower for longer “and market participants came to share that
view, then financial conditions would become significantly more
accommodative, even in the absence of any change in the current
level of the funds rate,” Yellen said, according to prepared
text of a speech today in New York.
“Such a shift in policy expectations would be associated
with a lower trajectory for the unemployment rate,” Yellen said
at the University of Chicago Booth School of Business’s annual
U.S. Monetary Policy Forum. The shift would also cause “a
somewhat higher path of core inflation,” Yellen said.

I am very happy I did not attend this speech at my alma mater. The laughter would have sort of spoiled the mood. But I could disarm the audience's opprobrium by simply stating "hey, laughter makes the mood lighter, right? I mean if words alone, uttered by the proper august Fed officials CAN SHIFT BILLIONS OF DOLLARS IN CAPITAL AROUND THE WORLD AND EMPLOY MILLIONS IN THIS COUNTRY PER THIS SPEAKER, then a little laughter can make us all less serious about this topic.


and of course, this headline...

*KOHN: INFLATION TO TAKE `SEVERAL YEARS' TO REACH 2% FOMC TARGET

Which is sort of contradicted by the following print:

-----------------Price Indexes------
Gross domestic purchases 2.1% 2.1%