From her speech today at The Economic Club of Washington, DC:
N.S. 1 “Continuing improvement in the labor market helps strengthen confidence that inflation will move back to our 2 percent objective over the medium term.”
But inflation has been moving away from the target, despite falling unemployment!
N.S. 2 The Fed has held its benchmark federal-funds rate near zero for seven years. When it raises the rate, it will be a sign that the economy has “come a long way” toward recovering from the 2007-09 financial crisis. In that sense, it is a day that I expect we all are looking forward to.”
Five years ago, the economy had already recovered from the financial crisis. Why did the Fed wait so long to “tell us”? Maybe only now they got tired of their “extended vacation”.
N.S. 3 Were the [Fed] to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals”. “Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession.”
That´s exactly what the Fed has been doing, inadvertently, over the past year by indicating “the time is coming”!
N.S. 4 “I anticipate that the neutral federal funds rate will gradually move higher over time.” “In September, most [Fed officials] projected that, in the long run, the nominal federal funds rate would be near 3.5 percent, and that the actual federal funds rate would rise to that level fairly slowly.”
That´s just misplaced faith. By their actions, the Fed is likely stifling the rise in the neutral FF rate.
PS The power of words: Yellen talks and the DOW tumbles