Kevin Grier lets loose at Cherokee Gothic:
People! Check out this quote,
“Michael Gapen, chief U.S. economist at Barclays Plc in New York, said Fischer’s comments “reflect an ongoing divergence of opinion” at the central bank. Fischer “doesn’t see much room for running the economy hot” while Yellen’s views “seem to provide a wide-open door to do that. You have a chair and a vice chair who see policy differently right now,” he said.”
After the events of the great recession, it’s just amazing to me that people think the economy is a steak, the Fed is a precision sous-vide machine, and all we have to decide is medium-rare or well-done.
For the millionth or so time, the models implying the Fed can do this, completely and utterly failed during the great recession. There is also evidence that a large part of the good outcomes credited to the Fed during the great moderation were actually due to exogenous forces (i.e. good luck).
Neither the Fed nor the President “runs” the economy. There is no stable, exploitable Phillips Curve / sous vide machine that lets us cook at a certain temperature.
This Fed worship is more religious than scientific. The past 10 years should be enough to convince anyone with an open mind that the Fed’s power over the economy is quite limited and tenuous.
But I guess it’s comforting to think that the little old lady behind the curtain can fix things for us.
She can’t, Stan Fischer can’t, Bernanke couldn’t. Maybe the sous vide machine is unplugged?
Yup, whatever your prior was, after the events of the Great Recession, you should surely downgrade your belief that Fed has a lot of control over the economy and yet I see a resurgence of this view despite it being at all odds with the evidence.