Yellen Anticipation

Yellen, the clear favorite, has been confirmed and Bernanke's term ends this January.  It is about to get interesting.  Do you think the Fed has been overly activist? I don't. Bernanke's been great, but I believe Yellen may take the Fed's role to another level. 

I don't buy the talk that the Fed doesn't have any tools/options for stimulating the economy.  To start with, the Fed can push banks to want to lend by lowering interest on reserves and possibly redirecting Fed investment (money printing) into more effective job creation instruments than treasuries. 

If Yellen's Fed can get M2 (money supply) to accelerate the added velocity of money may finally get our economic growth above 3+% which is where it needs to be in order to turn labor force participation, wage growth, and along with it tax revenues, around! 

"Yellen sees the economy as a great ailing beast, and she wants to massage it back to life. She knows that America is in danger of becoming like Japan, with chronically slow growth that leaves real interest rates low for a long time and tends to render the Fed chairman's traditional array of monetary tools ineffective."


If you believe the counter factual suggests I'm wrong, then riddle me this. Where has a tight central bank produced a recovery from the Great recession?  Or any recession with sub-target inflation and employment?

Don't be fooled by the drop of unemployment to 6.7%!! The real "main" unemployment rate known "U-6," which is defined as "total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers," is still over 13%! To give you an idea of how bad that is, it is approx. 60% higher than the average rate between 2000 and until just before the Great Recession/financial crisis started in 2008. 

Worse still is that labor force participation dropped below 63% in December. You have to go back about 35 years to the horrible economy of 1978 to find a rate that low!! The economy can't take off if the consumer doesn't start spending and the consumer can't start spending if employment and wages don't pick up and YELLEN gets that! 

I'm looking forward to seeing what Yellen does to kick this economy in the butt and get it really going. And, hopefully Obama and Congress don't screw it up!!