Central Banking 101

We all were enthralled with the new Fed Chairwomen Yellens’ speech in New York regarding the future path of Fed policy. She stuck to the script as all Fed Chairs are wont to do, but in response to a question about inflation she remarked that the “odds of deflation are much greater than the odds of inflation”. In response to a question about the potential for said inflation, she remarked that the Fed would be way out in front of a potentially damaging rise in inflation. The Fed’s inklings of this dangerous brand of inflation would be drawn from a variety of indicators, not necessarily  only a tightening of labor slack. The re-emergence of this Fed “dashboard” gave much comfort to those that were concerned that the Fed would do something reckless like normalize interest rates.These comments dovetail with Minneapolis Fed Governor Kocherlakotas’ recent talk where he stated that he is not worried about what to do in the event of escalating inflation because they already know exactly what to do “that’s Central Banking 101”. I’m not sure where they teach this class, but it would appear that they should throw out the old textbook, as the low to negative real rates of interest imposed by the Fed over the past 5 years have done almost nothing to aid real economic activity.This experiment in Central Planning is still just that, regardless of how Central Bankers may spin it.Drop your Central Banking 101 class and take something more practical like behavioral psychology( you will need it). Buy Stuff Sell Paper