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Janet Yellen is shocked that the Fedís price models donít work
Townhall.com ^ | April 27, 2014 | Nick Sorrentino

Posted on 04/27/2014 12:07:12 PM PDT by Kaslin

So are we. Just shocked.

Hey, at least she said it publicly. That’s more than Mr. Bernanke ever did.

Ms. Yellen says doesn’t understand why inflation is running hotter in the US than her models say it should be and why it ran cooler in Japan recently than her models predicted.

Models, it’s always the models with Keynesians.

Many modern economists like to think of themselves as scientists, or at least something close to scientists. But instead of white coats they wear tweed jackets and instead of verifiable results they produce excuses.

Ok that’s a bit harsh but it’s not far from the truth.

Some believe that Yellen is too enamored with a “natural rate of unemployment” that is too low. That she thinks the rate of unemployment where wages will start to drift up and which represents mostly transitional movement between jobs and not layoffs in the economy is around 5.5%. But others think the natural rate is closer to 7%.

If the natural rate is closer to 7% and the official employment rate is at 6.7% (as the Fed says it is now) then that means there may be serious pressure on prices to move northward long before we get into the 5.5% range. (If we ever do.) This could spur significant upward pressure which in turn will necessitate harsh interest rate moves up in the future to get things under control. (They are never “under control.” Prices, even strongly manipulated ones are never under control.)

Add that Yellen also said recently that the employment number coming from the Fed wasn’t particularly accurate and one can see why brows are furrowed around the table of the FOMC.

Pretty much it all comes back to the fact that the equations which never work for the folks at the Fed are not working yet again.

(From Bloomberg Businessweek)

“We remain far from having a full understanding of the recent behavior of inflation,” wrote the Romers, who are professors of economics at the University of California at Berkeley. Christina Romer is also a former chair of President Barack Obama’s Council of Economic Advisers.

Yellen referred to the conundrum in her speech last week. “During the recovery, very high levels of slack have seemingly not generated strong downward pressure on inflation,” she said. “We must therefore watch carefully to see whether diminishing slack is helping return inflation to our objective.”

There are a number of possible explanations here. 1 that there isn’t as much slack as Ms. Yellen thinks as noted above. 2 that the nature of “slack” has changed in a somewhat post industrial society with all sorts of welfare state provisions, which was also sort of noted. Add in people hiding in college with loans, the emergence of the Obamacare part-time army, and the Internet DIYers and things don’t fit the models conceived even 10 years ago. (Of course they never did.)

And don’t forget the ether through which all of these factors move, Quantitative Easing and the complete undermining of the pricing mechanism of capital in the economy. That might make things hard to figure out too.

Click here for the article.

Read More at Against Crony Capitalism.org


TOPICS: Business/Economy; Culture/Society; Editorial; Government
KEYWORDS: economy; federalreserve; grossincompetence; janetyellen; nicksorrentino
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1 posted on 04/27/2014 12:07:12 PM PDT by Kaslin
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To: Kaslin; All


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2 posted on 04/27/2014 12:10:13 PM PDT by musicman (Until I see the REAL Long Form Vault BC, he's just "PRES__ENT" Obama = Without "ID")
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To: musicman

Obama, “Spread the wealth around a little.”


3 posted on 04/27/2014 12:14:25 PM PDT by Jim Robinson (Resistance to tyrants is obedience to God!!)
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To: Kaslin

Oh I see.... It’s not your moronic incompetence, it’s the models. Good luck with that when the angry citizens with their pitchforks come out looking for you.


4 posted on 04/27/2014 12:17:02 PM PDT by Rockitz (This is NOT rocket science - Follow the money and you'll find the truth.)
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To: Kaslin

Maybe their models don’t work because the Obama administration has been fudging the inflation rate all along.

Any working stiff buying food and gasoline know that inflation has been surging over the last two years while our earning power has stayed stationary or has fallen.


5 posted on 04/27/2014 12:19:00 PM PDT by puppypusher ( The World is going to the dogs.)
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To: Jim Robinson

6 posted on 04/27/2014 12:19:37 PM PDT by musicman (Until I see the REAL Long Form Vault BC, he's just "PRES__ENT" Obama = Without "ID")
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To: puppypusher

Maybe the models don’t work, because they were not meant to be run in a universe where our biggest competitor is a low-cost monopoly, with 1.2 billion people, and a one-party state running it all.

Just saying...


7 posted on 04/27/2014 12:22:16 PM PDT by Cringing Negativism Network (http://www.census.gov/foreign-trade/balance/c5700.html#2013)
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To: Kaslin
If the natural rate is closer to 7% and the official employment rate is at 6.7% (as the Fed says it is now) then that means there may be serious pressure on prices to move northward long before we get into the 5.5% range.

I was going to bash this statement for believing the official unemployment rate. But now I'll just point out that this sentence says the official employment rate is 6.7%. Not unemployment, but employment.

8 posted on 04/27/2014 12:23:41 PM PDT by DannyTN
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To: Kaslin

I like that Yellen is focused on unemployment. I suspect she knows that the official unemployment rate is bogus.

Her initial solution is going to be more easy money, like her predecessor. But I’m hoping that she continues to look past that and eventually realizes we need to restore the import tariffs.


9 posted on 04/27/2014 12:25:50 PM PDT by DannyTN
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To: Kaslin

Just shows how stupid she is.


10 posted on 04/27/2014 12:39:01 PM PDT by mulligan (I)
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To: puppypusher
Models, at best, can only give you a rough idea of future trends in economics.

The reality of 330,000,000 people making independent decisions in their own self interest will frustrate the best model.

11 posted on 04/27/2014 12:41:50 PM PDT by Former Proud Canadian
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To: Kaslin
"Ok that’s a bit harsh"

No, it's not. It is not possible to criticize Keynesian economics with sufficient force.

Fractal Keynes photo Demotivators234aJohnMaynardKeynes_zps16c5e1e4.jpg

12 posted on 04/27/2014 12:44:59 PM PDT by dsc (Any attempt to move a government to the left is a crime against humanity.)
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To: puppypusher

Gas prices - Historical Price Charts
http://www.gasbuddy.com/gb_retail_price_chart.aspx

Up up up. Add taxes to that number. Then add price of food and everything else. Inflation is high.


13 posted on 04/27/2014 12:45:15 PM PDT by minnesota_bound
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To: Kaslin

Good For Janet Yellen!She Hasn’t Drunk As Much Of The Kool-Aid As Her Predecessor!!!!!!!!!!!


14 posted on 04/27/2014 12:49:06 PM PDT by bandleader
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To: Kaslin
Fed 'science' is boring...lets try something else.
15 posted on 04/27/2014 12:52:28 PM PDT by JPG (Yes We Can morphs into Make It Hurt.)
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To: Rockitz

“...when the angry citizens with their pitchforks come out looking for you.”

Progressive citizens don’t get angry at Progressives, they get angry at George Bush. (And they’ll keep voting Progressive, ad nausem, ad infinitum.)

IMHO


16 posted on 04/27/2014 12:55:12 PM PDT by ripley
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To: Kaslin

Remember all those deeply complex mathematical models showed how you could re-hypothecate the same home loan, insure it all against default, and make a ton of money for the banks. It all worked well until it didn’t.


17 posted on 04/27/2014 1:01:58 PM PDT by Flick Lives ("I can't believe it's not Fascism!")
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To: Kaslin

Socialists/Communists have no idea how economics work.... because their understanding of basic human nature is wrong.


18 posted on 04/27/2014 1:07:14 PM PDT by Bryan24 (When in doubt, move to the right..........)
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To: Former Proud Canadian

“Models, at best, can only give you a rough idea of future trends in economics.”

But, models have been so very effective in convincing many that the temperature of Earth’s atmosphere is becoming warmer and warmer, dangerously warmer. Not accurate, but effective.


19 posted on 04/27/2014 1:08:52 PM PDT by Elsiejay
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To: Kaslin

This yellen thing is a marxist just like her boss.

Why is 0bama fascinated by shriveled up old hags? (sibelius, yellen, lerner, hillary)


20 posted on 04/27/2014 1:19:44 PM PDT by I want the USA back (Ask me what I think.)
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