Fed Continues Move Towards Explicit Targets

November 14, 2012
Categories: Economy, Financial Markets

Federal Reserve Vice Chair Janet Yellen gave a speech yesterday on the Fed’s continued movement towards clearer communication via explicit inflation and unemployment targeting.

Tim Duy: “The Fed is moving in this direction, promising to further lock-in a program of aggressive large scale asset purchases.  But is this the end of the road for policy?…  If the economy stumbles, will the Fed pull a new trick out of its policy bag, or is that bag finally empty?  And if that bag is empty, then we will need to turn to fiscal policy if the economy stumbles.  This is worrisome given the expected path of fiscal policy – tighter, just degrees of tighter. Which means for the moment we just cross our fingers and hope the economy gains traction on the back of housing and accelerates as 2013 progresses.”

Matthew Yglesias is more optimistic: “This is potentially a huge deal. Yellen is an important policymaker in her own right, and the Federal Reserve Board of Governors usually acts as a team so it’s unlikely she’d be out there with this speech unless Ben Bernanke wanted to shift the Overton Window a bit… That’s excellent news for the American labor market.”

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