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Janet Yellen gave a much-anticipated Jackson Hole speech on the job market today, and the stock market barely moved. That, says the NYT’s Binyamin Appelbaum, was exactly the the outcome the Fed chair wanted. She said the job market was improvingbut not quite improved enough. The true amount of slack in the labor market is uncertain, and therefore, interest rate policy cannot be prescriptive. The Fed, in other words, is still waiting to see when it will change its wait and see approach on interest rates. (Privately, Jon Hilsenrath and Pedro da Costa report, the Fed is strongly hinting it will raise rates in the summer of 2015.)
One item where Yellen was clear: she is not a fan of Congressional Republicans’ calls for the Fed to follow pre-set guidelines, like the Taylor rule, when it sets interest rates. “Monetary policy,” Yellen says, “ultimately must be conducted in a pragmatic manner that relies not on any particular indicator or model, but instead reflects an ongoing assessment of a wide range of information.” The NYT’s Binyamin Appelbaum said that portion of the “speech is a direct rebuttal to GOP/Taylor proposal for Fed to announce a rule. She’s arguing life is far too complicated.”
Business Insider’s Myles Udland connects the speech’s intensely measured tone on monetary policy with its comparatively direct rebuttal of Congressional oversight of the Fed: “Yellen… remains focused on giving herself and the FOMC as much flexibility as possible with respect to when and where interest rates go, and part of this flexibility also likely depends on the Fed maintaining its current relationship with Congress: independent.”
Barry Eichengreen says “this yearning for an idealised past in which central bankers could focus on moving rates by a notch or two” is dangerous in the current context. Central bankers, he argues, should not eagerly raise rates just because they’re currently at zero. Nostalgia is not a sound basis on which to make monetary policy. —Ben Walsh
On to today’s links: