First Bernanke, now Yellen. As I wrote earlier today, there is a growing tendency to revise economic history at least as it applies to official actions. Ben Bernanke defends QE from the perspective of 2009 forward, as if 2008 was all just someone else’s problem irrelevant to the world that came after. In effectively resigning from the Fed Chair position as she did yesterday, Janet Yellen assumes judgement from the same Year Zero:
The economy has produced 17 million jobs, on net, over the past eight years and, by most metrics, is close to achieving the Federal Reserve’s statutory objectives of maximum employment and price stability.
That’s true. Between October 2009 and October 2017, a term of eight years, the BLS’s Establishment Survey figures a positive difference of 16.96 million payrolls. If, however, we judge the Fed’s performance from the prior peak, as is appropriate, the record is cut in half, only +8.58 million net gained. In terms of full-time employment, the “growth” is worse still, just +4.8 million despite 22.8 million added into the prospective labor pool (Civilian Non-Institutional Population) over that time.
“If you measure it only from the bottom we don’t look so bad” isn’t exactly a happy retirement sendoff. Yellen also uses another weasel word prominently in just that one sentence. After all this time and effort, the economy is still only “close” to where the Fed thinks it should be. How can this be?
It’s a question that the Fed and the mainstream still struggle with today. Yellen will leave her office in a state of “conundrum”, just as Greenspan left if for Bernanke. If the economy was actually close or better on inflation and unemployment, there would be no bond market contradiction.
And it’s not actually a contradiction so much as a performance grade, and a failing one for Yellen/Bernanke. Fed officials claim things are getting better where instead the bond market just flat out disagrees. Long term yields, inflation expectations (TIPS), and implied future money rates (eurodollar futures and interest rate swaps) all signal nothing has changed, and that’s not good.
