This Is How A Fed Dove Crushes Any Hawkish Opposition To The Fed's True Religion

Tyler Durden's picture

The relatively new Minneapolis Fed president Narayana Kocherlakota is not known for any insightful, original ideas. Before he took over the MinnFed, he was a research economist at the bank in the late 1990s, a consultant there from 1999 to 2009, taught at the University of Minnesota from 2005 to 2010 and was chairman of the U’s department of economics before being named president of the bank. What he is best known for is his epic flip-flopping: from one of the Fed's staunchest hawks early in his presidential career, to a dove so starved for the Fed's monetary liquidity, he often puts even Charles Evans to shame. He is among the first to suggest that the Fed should hold rates at zero until unemployment hits 5.5% (which it never will unless of course the plunge in the labor participation rate continues) something which both Goldman and Yellen have now adopted as gospel. Nobody knows what precipitated this shocking metamorphosis, although it is said Ben Bernanke can be quite persuasive during unrecorded phone calls. Which brings us to the topic of this post: what does a suspiciously reformed Fed dove do when faced with increasingly louder, conflicting voices that challenge the delusion that the only thing that will fix a failing QE is more QE? He fires them of course.

As the Star Tribune reports, two top economists at the Minneapolis Fed were "shown the door" when they disagreed with their tyrannical money printing advocate. Who were the two?

The departing economists are Patrick Kehoe and Ellen McGrattan, both highly regarded researchers with long tenures in Minneapolis. Kehoe, a Harvard Ph.D. who has taught at the University of Pennsylvania and the University of Chicago, joined the Fed as a monetary adviser in 1997. He was the bank’s highest-ranked research economist, according to data from the St. Louis Fed.


“He’s a high-profile person in the profession, a world-class economist,” said Stephen Williamson, a former Minneapolis Fed economist who now works at the St. Louis Fed and is a professor at Washington University in St. Louis. “He’s a big deal.”


Kehoe declined to comment. McGrattan said Kehoe was fired on Oct. 18. He already has a position at the U, which often shares economists with the Minneapolis Fed. “Patrick Kehoe did not choose to quit or leave the Fed,” McGrattan said.


McGrattan, a Stanford Ph.D. who taught at Duke University before joining the Minneapolis Fed in 1992, will take a position with the University of Minnesota in January and will go on unpaid leave at the bank. She has been an adjunct professor at the U since 1993 and said she was pushed aside at the Fed more implicitly than Kehoe.

As a reminder, "The Minneapolis Fed has a reputation as one of the premier economic research institutions in the country. A close partnership between the U and the bank over the years resulted in an innovative marriage of academic economic research and policymaking. It was a fruitful collaboration in which economists such as Prescott, Tom Sargent, Chris Sims and Neil Wallace helped put the Minneapolis Fed and University of Minnesota on the map. Former President Gary Stern and Art Rolnick, the former research director, continued the tradition. Sargent, Sims and Prescott eventually won Nobel Prizes in economics, and Sargent and Prescott still have ties to the U and the Minneapolis Fed."

Sargent, incidentally, is the same person who a few days ago was heard uttering the most apocryphal words a Fed cardinal could hear, namely that deflation is actually a good thing, and that Greece might benefit from returning to a gold standard. It is easy to see why Kocher does not like him.

But back to Kehoe and McGrattan who were mercilessly sacked by their dovish boss: why did he do that one may ask? Simple - they disagreed with his monetary religion.

There are subtle policy differences between Kocherlakota and the economists who are leaving. Kocherlakota has been at the center of a debate over the effectiveness of the Fed’s low-interest-rate policy. He has pushed for nearly two years for the Fed to hold down rates until unemployment drops to 5.5 percent.


He argues, in general, that what are known as “New Keynesian” economic models are helpful. This school of thought has helped create an unprecedented intervention in the financial markets by the country’s central bank — the $85 billion a month bond-buying program known as quantitative easing.


But Kehoe and McGrattan published a paper in 2008 arguing that monetary policy can do little to affect the unemployment rate, and Fed policymakers should instead focus primarily on controlling inflation.


New Keynesian models are not yet useful for policy analysis,” they wrote.

Which is effectively the same as telling the Spanish Inquisition that god does not exist. Luckily, modern society is a little more developed (for now). Instead of Kehoe and McGrattan getting the iron maiden, they were merely fired.

Prescott laments that this sort of debate within the bank, long encouraged, no longer appears to be welcome. “A good administrator sets up a loyal opposition,” he said.

Don't ask. Don't question. Just accept. And with that it's case closed for how the Fed's pathological voodoo shamans deal with any dissent.

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hedgeless_horseman's picture



Prescott laments that this sort of debate within the bank, long
encouraged, no longer appears to be welcome. “A good administrator sets
up a loyal opposition
,” he said.

A good fascist administrator sets up a loyal opposition... against a post.

Did this idiot not see what happened to Bradley Manning and Edward Snowden?

AlaricBalth's picture

Patrick Kehoe has been a bit of a renegade at the Minneapolis Fed. I mentioned him yesterday in a post. Did the meer mention of his name on ZH and a link to his study debunking Bernanke accelerate his ouster? Nope...but that would be funny!!!

Kehoe and Atkison of the Minneapolis Fed say Bernanke was incorrect as to his assessment about  depression and deflation.

Deflation and Depression:

Is There an Empirical Link?

"The data suggest that deflation is not closely related to depression. A broad historical look finds many more periods of deflation with reasonable growth than with depression and many more periods of depression with inflation than with deflation. Overall, the data show virtually no link between deflation and depression."

hedgeless_horseman's picture



“New Keynesian models are not yet useful for policy analysis,” they wrote.

They should have listened...

“Truth is treason in The Empire of Lies,”
-Ron Paul

SoilMyselfRotten's picture

Now i am so confused. Why didn't PM's spike up after hearing this Fed guy come out from under his rock? In the same way they trot out their Tapermen every time they want to monkeyhammer it. That was a rhetorical question.

Acet's picture

"PM prices" are in fact paper PM prices, which are set based on offer and demand not for PMs but for PM price risk-exposure or protection thereoff.

Effectivelly, the price of PMs is defined by on how much money is available to for margin of PM Futures and Options contracts and the risk-aversion of participants in those markets. Considering that the likes of the BIS and Central Banks have a lot of money for margin and zero concern about taking on risk in the process of keeping PM prices down, it's unsurprising that we have the prices going down, even when the actual comodity is getting harder to get in physical form.

PM prices will stop going down when the BIS and Central Banks stop spending money to keep PM prices down OR a big enough disconnect between the paper markets and the physical markets happens, breaking the former.

NoDebt's picture

Group-think, like the concept of TBTF, has now been firmly institutionalized.

The more you harden a metal, the more brittle it becomes.  Which is why most useful industrial metals are not hardened all the way through- only on the outside where they move or wear against other parts.  Harden it all the way through and it can shatter like glass, unexpectedly, even in fairly normal operating environments.

Bastiat's picture

Plus one for a perfect analogy.

Crash N. Burn's picture

Did this idiot not see what happened to Bradley Manning and Edward Snowden?


 Indeed. Truth has no place (and will be given no quarter) in the Fourth Reich.


"But where objective Truth does not exist, there cannot be any “reality”. Instead there is simply the Propaganda Matrix (Republican version, and Democrat version); into which these Binary Drones willingly “plug” their own minds"

The Fourth Reich
max2205's picture

The Barry purge continues. ..first the the sane clerks next..'have a Barry good day comrade, why the asprin ?'

Crash N. Burn's picture

 Puppet in  charge is irrelavent 'cause whereas the Third Reich was financed by western bankers et al, the Fourth Reich is owned!


"It wasn’t until after World War II that authorities were belatedly able to trace the paper-trail (through the BIS) to industrialists such as Prescott Bush, who was charged and convicted of “trading with the Enemy” – an official U.S. Traitor. Not surprisingly; the One Bank selected both the son and grandson of this Traitor to be two of its Puppet Presidents, each of whom started a war, from which the One Bank profited immensely."


"What happens any time the government of the United States (“world’s only superpower”) asks the Federal Reserve to do something which the Bankers don’t want to do? The Federal Reserve tells the Puppet Politicians that it is “independent” – and ignores the request. Obviously the Federal Reserve and U.S. government exist in and operate the same economy. If one entity is independent, then (by logical necessity) the other must be dependent (i.e. subservient)." - from the same article as my first post


 The US is a two party dictatorship - real choice doesn't exist.

DeadFred's picture

Two things I can think of would explain a sudden metamorphosis like that- an alien transplant and blackmailed coercion using the NSA's vast databank of information. Since the first is most likely a myth I tend towards believing the latter. Of course the stick works better when coupled with a carrot. "We'll keep you supplied with a steady stream of young boys but remember that we'll be taking pictures."

Of course I tend toward believing a lot of conspiracy theories like they are tapping our phones and computers and they are manipulating LIBOR rates so you may want to discount my opinion.

gmrpeabody's picture


Perhaps you're not totally dead....

asteroids's picture

The ONLY way to get the employment rate down is for the NSA ro release a virus that kills everyone over 45. This a a demographics problem.

Martdin's picture

So The Bernank is like the Pope of the finance world? :P

fonzannoon's picture

2 more guys who get to sign up for Obamacare.

Its Only Rock N Roll's picture

That is until the open enrollment period for new Goldman Sachs employees. 

jcaz's picture

What an EPIC tool-  perfect example of why Economists should be treated like mushrooms-  keep them in the dark and pee on them now and then for best results...

dcohen's picture

None of the FED talking heads have any original ideas or any integrity, they all coordinate their opinions as to give the impression that they are hawkish or dovish, switching places etc. They are all basically idiot doves.

Cursive's picture

That's bad for Patrick Kehoe and Ellen McGratten, but who doesn't think even these two are like the imperial physicina who used to smell the emporer's stool for signs?  Close the econ department and stop blowing smoke up the drowning victom's ass!

jon dough's picture

Succinct, insightful, and short.



carbonmutant's picture

Rick: I came to Casablanca for the waters.

Captain Renault: The waters? What waters? We're in the desert.

Rick: I was misinformed.

onewayticket2's picture

Thou Shalt Not Speak Ill of Dear Leader.

RaceToTheBottom's picture

"What he is best known for is his epic flip-flopping"


Also has an interesting name.  Other than that, meh, he is a bankster

yogibear's picture

Sorry Narayana Kocherlakota your Fed isn't dictating to all countries like the BRICs. The Saudis are also opting out of.

Once you loose control your fed will just generate a lot of hot air.

Toolshed's picture

So what you are saying is that the fed lost control some time ago.

Coldfire's picture

Q: What do you call two fired Fed employees?
A: A start.

RaceToTheBottom's picture

Getting fired will probably be the best thing that has happened to their careers....  In a year or two

Dr. Venkman's picture

I think the explanation is simple. We are the victims of some sick academic pissing contest. Kocherlakota comes up with a theory (New Keynesianism) and sets out to prove he is correct no matter the cost.

toomuchtom's picture

When one's boss, Ben Von Bernankenstein, routinely elects to ignore legitimate quesitons by "rejecting the premise", why would we expect the Minneapolis Fed Chair to accept internal questions.

B.J. Worthy's picture

On the USD's inevitable day of reckoning, I'll be playing Prince's When Doves Cry.