Janet Yellen nailed it in her Tuesday speech last week. Even the financial media have struggled to get the magnitude, but the civilian version, below, will make sense and give reason to celebrate. (Beware April Fool’s Day. But we’ll get to that.) Yellen’s multi-home-run speech established her command of the Fed after a shaky first year, and her command of economic analysis of our situation (the only way to command the Fed), and capped near-term interest rates, both short- and long-term. The points she made on the way to her overall conclusion are now “settled law” inside the Fed. Unless superseded by surprising new data -- to which she will react, of course -- it will be foolish for anyone at the Fed to argue. Three key points: inflation will rise slowly to the Fed’s target, 2 percent. Risks are asymmetric: It is much easier for the Fed to adjust to a strong surprise from the economy than to a new recession. And Yellen repeatedly mentioned new weakness in foreign ...
- Inflation will rise slowly to the Fed’s target, 2 percent.
- The Fed funds rate is now 0.50 percent, so Yellen is indicating two quarter-point hikes in the rest of 2016 -- if that -- and another 1 percent in 2017. If that.
- Yellen could not be more clear: We are not entering some death march to 4 percent or even to 3 percent or maybe even to 2 percent.