Is A Little Renewed Political Urgency Before Renewed Monetary Urgency Too Much To Ask For?
In the strict cohort of central bankers, at least the Fed isn’t yet the Bank of Japan. The BoJ is run by straight clowns, a sort of weird performance art maybe due to almost thirty years of accomplishing nothing. Federal Reserve officials can at least manage to sound legitimate if still acting without success.
In the grand scheme of things, central bankers should not matter. There will come a time when no one will care when one or the other gives a speech or adjusts a policy rate. On this belief I am convinced, as unlike Japan there is only so much that can be maintained. The election of Donald Trump was the first sign that limits were in danger of being breached.
Despite the angst that put him in the White House, there is little or no urgency in Washington. I think that it is a product of confusion, the worst case scenario I wrote about last year where in a repeat of 2013-14 relative economic and financial improvement would be mistaken for tangible progress. In the first half of 2016, as the global economy appeared to be in danger of falling off a cliff, Yellen clueless as to what was happening, economic concerns were a matter of immediate importance.
With “reflation” late last year, though fading now, it doesn’t seem so pressing. As I wrote just a few days after the inauguration:
It is 2017 and the last time the word normal could be most realistically used to describe the global monetary condition was in early 2007 ten years ago, meaning that in every way crash is not the worst case. The nightmare scenario is repeating the same malfunction over and over and over without the possibility of resolution. No matter what you do, nothing will work; and by and large what you do do only makes it incrementally worse. At this point, a crash is a welcome reprieve, for it is likely the only way to recommend sufficient urgency so as to consider and allow the radical steps necessary to actually get out of the nightmare.
As oil and bonds start to reflect maybe a little too much 2014, there is as yet not a whiff of even the small counteraction let alone the necessary radical. The momentum of 2015-16 in terms of reform has been lost in the confusion of “improvement.” So much so, it is possible that President Trump could keep Janet Yellen for a second term.
The president hasn’t even discussed the situation at any length with his top economic adviser, Gary Cohn, this official said. Moreover, Trump likes Yellen and feels no sense of urgency to explore the matter, the official said.
He really should. Replacing Yellen, of course, will in the strictest sense change nothing. She would in all likelihood be replaced by the next empty suit who will do as she did, just as she carried on for Bernanke, etc. Symbolically, however, it could send a message that maybe the status quo won’t be any longer tolerated, 2017’s economic improvement nowhere near sufficient to be quietly accepted. It might even provoke a further reckoning than the one partially begun last summer.
Stasis just won’t do it. That is why we are forced to still care about the Fed, the ECB, and the circus in Tokyo. As we are constantly reminded now with renewed talk of a “conundrum” (that isn’t), people can’t get clarity on what is wrong so long as economists’ pronouncements remain uncritically accepted. Firing Yellen could signal to the people that it’s time to stop taking them at face value, to search for legitimate answers that aren’t spit out of an obviously flawed regression model and a skewed version of monetary history.
The answers are right there, as St. Louis Fed President and non-voting FOMC member Charles Evans comes so close to touching today (thanks to M. Simmons):
I sometimes wonder if there isn’t something more global, more technological taking place that we don’t quite have our arms around very well.
E-U-R-O-D-O-L-L-A-R. This follows closely Neel Kashkari’s negative vote and public dissemination of faith (that the Fed is right) versus evidence (bonds, oil, inflation, participation problem, stuck at 2% at best, etc., that the Fed hasn’t been right in so long we all forgot what that was like). There is today official doubt that is being more and more expressed publicly, suggesting that even policymakers are now perhaps sensitive to becoming BoJ-style comedy acts.
Maybe, just maybe, a little political pressure would be enough to get things moving far enough in the right direction – even if that direction ultimately leads to a time when the Fed is treated as irrelevant as it has been in functional terms.