I see that Ryan Avent is also appalled by the revelations in the recent Hilsenrath story:
THE Wall Street Journal‘s Jon Hilsenrath has written a nice piece on the Fed’s internal battle over when and how to taper, and it’s filled with one groan-inducing moment after another.
Purchases, the Fed said then, would continue until there was substantial improvement in labour markets and so long as price stability was not at risk. By early 2013 the unemployment rate had fallen a bit but remained well above the Fed’s estimate of “normal”. Inflation, meanwhile, was if anything too low. And what, at that moment, were our Fed governors worrying about?
By April more officials, including the governors, were getting worried about terms like “QE-ternity” and “QE-infinity” floating around financial markets, which suggested some investors thought the program was boundless, according to people familiar with Fed discussions. The Fed officials thought the job market had made enough progress to warrant discussing an exit.
“We’re in this box because we’ve got an open-ended program, and we didn’t figure out how we were going to end it when we started,” Richmond Fed President Jeffrey Lacker , an opponent of the program, said in an interview.
Who cares about the economic fundamentals, the dual mandate, when Wall Street is coining terms?
The Fed now has a triple mandate:
- Low inflation.
- High employment.
- Minimizing the number of sarcastic comments from Wall Street that might make their lives more embarrassing at cocktail parties with rich people.
Back in 2009 I tried to convince people that Obama was partly to blame for the mess, as he wasn’t taking monetary policy at all seriously. Now that is becoming the conventional wisdom. Once again, here is Ryan Avent:
It comes as no surprise that Jeremy Stein, a member of the tightening troika, would be anxious to pare down purchases; since beginning his term last year he has spoken repeatedly about the threat of financial instability. But one can’t help but notice that two of the three governors leading the charge to taper were appointed by Barack Obama. Who also left seats on the Board of Governors unfilled for an extended period of time despite the rickety state of the economy. And who has also completely misplayed the process of nominating a successor to Ben Bernanke as chair of the Board of Governors.
One is tempted to conclude that Mr Obama simply doesn’t care much about monetary policy, and when he does turn his attention in that direction is mainly concerned with bubble prevention. This is an egregious error, especially given the state of fiscal policy over the past two years (and the cost of economic weakness to his popularity and agenda, for that matter). He obviously had his opponents on Capitol Hill to deal with; Senator Richard Shelby opposed economics Nobelist and Obama nominee Peter Diamond for the board on the grounds that the man wasn’t qualified. Yet the administration’s failure to take monetary policy seriously looks increasingly culpable in America’s lousy recovery.