The Only Fed Voice that Matters – Listen to Yellen

James Grant of Grant’s Interest Rate Observer recently weighed in on Federal Monetary Policy in a Bloomberg Report video. Grant believes the Fed “conceives its principal work to be suppressing or distorting the free play of interest rates or prices.” Asked what the Fed should do or not do to make the prices rule, Grant said the Fed has missed its mark, explaining that it had six or seven years to orchestrate a return to normal interest rates but are now confronted with moving to restore a normal structure of interest rates. Grant opined: “what the Fed ought to do is less, meaning they ought to intervene less, to get out of the way of the asset market, not to try to institute inflation at the rate of 2%.”  What the Fed conceives as “price stability” in the rise in general level of prices, he suggested, might appear very much like inflation to a layman. “We have what a friend of mine, Seth Lipski, calls ‘the verbal dollar.’ They talk and talk and talk.” Grant notes that Fed alumnus Kevin Warsh assays instead of listening to the noise, “‘only one voice matters, that of Janet Yellen.’” Grant also emphasizes that Fed decisions are data dependent, but that data points are not as represented because “they are first guesses, they are prone to revision, they are backward looking;” recalling that economist  Oscar Morgenstern was merciless toward those who take the emissions of the data mills at face value. Jonathan Ferro summarized the conversation neatly: “Cut through the noise. Listen to Janet Yellen.”