When Will Janet Live Up To Her Reputation?

Tyler Durden's picture

Authored by Kevin Muir via The Macro Tourist blog,

I am asking you to put aside all your notions about monetary policy for a moment, and think about the next couple of points with an open mind. Forget about scary Central Bank balance sheets. Fight the urge to worry about the unprecedented quantitative easing programs. Dismiss the warning cries of the frightening levels of debt. Ignore the apocalyptic forecasts of coming stock market crashes. Let’s just have a look at the data. And most of all, let’s not worry about what should be done, but think about what will be done.

Rightly or wrongly, the Federal Reserve has a dual mandate. They are tasked with maximizing employment and maintaining price stability. Although many will debate what constitutes price stability, the Federal Reserve has interpreted it as a 2% inflation rate. You might think this absurd, so be it. It is what it is. Complaining will get you about as far as yelling at clouds.

When Janet Yellen took the reins of the Federal Reserve, many pundits predicted a period of exceptionally easy monetary policy as she was widely viewed as a uber dove. But has her reputation proved deserved?

The Fed’s preferred inflation gauge is the PCE Core Index. Don’t forget the 2% rate is a target over the long run. So if the Fed was meeting their objective, we should see half the observations above 2%, with the other half below 2%. Just for kicks, I put together a histogram of the PCE YoY% rate since Yellen took over.


Some dove. Yellen has consistently undershot her inflation mandate. Contrary to what most believe, Janet has been one of the most hawkish Central Bankers out there.


Why then does everyone think she is so dovish? Too many are focused on the Phillips Curve and are convinced the low employment rate will usher in higher inflation rates.


If you are a Phillips Curve disciple, it seems like the Federal Reserve is way behind the curve, and that Janet Yellen is being irresponsibly easy. When combined with the low nominal rates and the elevated Fed balance sheet, it is easy to fret about the fact that Janet is not raising quickly enough.

Yet what is the market telling us? The US Treasury yield curve has been flattening ever since Yellen took over.


The bond market is speaking, but most aren’t listening. It is telling us that Yellen is tightening too quickly. Or at least, she is by no means anywhere near as easy as the popular narrative.

Could it be that the bond market understands labour dynamics better than the supposed labour expert Janet Yellen?

The Phillips Curve was at best a dubious rule, but in the current environment, it is next to useless. Does anyone really believe the government statistic of a 4.3% unemployment rate?

Here is a great chart from Meridian Macro Research that shows the employment-population ratio versus the unemployment rate.


So let’s think about the current situation. We have a perceived dovish Fed Chairperson who has failed miserably to achieve her inflation target, and although the other half of her mandate appears on the surface to be bumping against constraints, the idea that she has maximized employment is laughable. As she tightens, the bond market smells the coming slowdown (recession?) and flattens the yield curve.

I know this flies in direct opposition to the common belief that Yellen is a super dove who is way behind the curve. But if you take a step back and look at her record, it is a difficult case to make. She is undershooting her inflation mandate by a wide margin.

Now you might believe that target ridiculous, and Yellen should immediately crank rates to return monetary policy to sane levels. Yeah, I understand that argument, but it’s not relevant. The Fed is not about to change its stated goal (unless to raise their inflation target). I suggest you forget your complaints, and go back to yelling at kids to get off your lawn. I am just going to accept the Federal Reserve as another Central Bank that will inevitably debase our hard earned money. And the next big surprise will not be Janet becoming even more hawkish, but instead, Yellen living up to her reputation as an uber dove.

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wisehiney's picture

Policy error vs credibility.

Which will it be?

ShorTed's picture

Bond market screaming POLICY ERROR.  Oh, well...maybe someday they'll firgure it out.

Keep stacking your PMs and crypto

JRobby's picture

Janet should shut her face

PrayingMantis's picture


... perhaps Mr Janet Yellen should explain this US Fed's bailouts of international banks and corporations ...

>>> "The Fed's $16 Trillion Bailouts Under-Reported"

>>> https://www.forbes.com/sites/traceygreenstein/2011/09/20/the-feds-16-trillion-bailouts-under-reported/#7601183d26b0


101 years and counting's picture

its funny.  as if janet has any clue what she mumbles.  she is the dumbest, laziest person the bankers could find so they can pull every string.

KimAsa's picture

One hour a week = a "job" in the BLS statistics.

Drimble Wedge's picture

She's already lived up to her (((reputation)))

brushhog's picture

I think this is a fake rate hike. Something isnt functioning like past rate hikes. How can interest paid on savings accounts be staying the same after 3  rate hikes? How can bond yields be falling?? If interest rates dont go up, its not a rate hike.

Peacefulwarrior's picture

Is this the famous last standoff scene in the "good bad and the ugly"

aliens is here's picture

Her job right now is to bring down Trump.

Last of the Middle Class's picture

She's covering the FANGs quite nicely, she knows what her job description is, or more importantly what it isn't and that my friends includes 99% of the country at this moment.

NDXTrader's picture

Why is it so hard for people to understand that Yellen hates Trump. She's as left wing as Bernie. She is going to remain hawkish until Trump gets rid of her. She made every excuse in the book to stay loose under Obama, and now she will make every excuse to stay tight. You think she wants Trump tweeting about how much the market is up?

small axe's picture

she has continued the Fed's 104-year history of rape and pillage of the American worker in grand style. Isn't that enough to ensure a stellar reputation? What more could the Rothschilds want?

saveUSsavers's picture


There is NO imperical evidence economy won't be HELPED BY HIGHER RATES, go fuck off

aliens is here's picture

Are you on the edge bud? Go take a chill pill or a vacation. You sound like you are about to blow.

KimAsa's picture

Blue pill overdose.

I'm sure Yellen can come up with all the "imperical" evidence she needs.

ShorTed's picture

There is plenty of empiracal (not sure about imperical) evidence to suggest higher rates hurt economys.

Perhaps you're just confusing savers with the economy.

Chipped ham's picture

The early 80's say you're mistaken. 

lolmao500's picture

If the bond market was reacting, the interest rate on 10y would be 5% at least.

Harry Lightning's picture

It just might be that the same forces pushing the stock market up are the forces also pushing the bond yields and spreads down : too much liquidity. In normal times, the real rate of inflation comparisons may hold water, even though the historical real bond yield is about 175 basis points higher than where long bonds trade today. Which is another sign of too much liquidity chasing too few bonds. Just saying the words "too few bonds" in a world awash in debt shows just how much liquidity is in the global market and needs to be vacuumed away. 

So while traditional measures of economic strength may still be gleaned from the performance of the bond market, I caution that what we may be seeing is an application of Occam's Razor - the simplest explanation is probably the correct one. Too much global liquidity distorts the prices of financial instruments, and only by draining that liquidity back to more normal levels by historical standards will the bond market once again be an oracle of insight as to the contemporaneous condition of the economy.

moonmac's picture

I can't buy enough “American Made” shovels and rakes at Goodwill for $1.99. When a hundred thousand only buys a thousand in goods I’ll be glad to have some cheap well made tools laying around. Convincing my girlfriend is a different story. She always grabs my 150 year old shovels and saws to dig holes and cut wood so she’s totally clueless about everything like all women including Grandma Yellen.

Cordeezy's picture

Yellen is hawkish compared to over central bankers who are dovish, but I wouldn't call her a hawk really.  She is more of a dove still.  Most bankers are gun shy after the 2008 crash.






gold rubeberg's picture

They should be gun shy - but have blown another bubble anyway.

Fantasy Free Economics's picture

Allow me to debunk all macro economic theories in one sentence.

Governments don't make economic decisions. They make political decisions.


I am completely ammused at all of the otherwise smart people who think there there is a right or wrong thing Yellen could do or not do.

James Quillian

Fantasy Free Economics


nailgunner44's picture

"Yellen has consistently undershot her inflation mandate."

Real inflation is running closer to 10% than 2%. Fuck your phony cherry-picked CPI bullshit.

Thethingreenline's picture


aloha_snakbar's picture
When Will Janet Live Up To Her Reputation?


What reputation would that be... as a pre-paid whore/shill for TPTB ?

Angry White Guy's picture

"New lows in the unemployment rate"

"New lows in the .gov manipulated, completely useless, completely a misrepesentation of reality, Jewish approved, unemployment rate"

Fixed it.

ali-ali-al-qomfri's picture

this is what it sounds like, when doves cry.

Drop-Hammer's picture

Better question.  When will they replace this kikess dwarf with someone who knows what is going on?