The one dissent at the last Fed easing was Charles Evans. His dissent was of the very rare kind - it was a dissent against current policy because it was not easy enough! This in a world of multiple QEs, Operation Twist, 0% Fed Fund rates (til at least mid 2013) etc.
Mr. Evans took to the airwaves at CNBC this morning in the 11 AM hour - while the market did not immediately react, the S&P 500 has since surged 11 points or 0.9% as Pavlov dogs react in glee to the groundwork being laid for more easing.
While I agree with Evans with the concept of lack of wage/price spiral due to WAGES, as the U.S. in the 1970s was more of a contained economy, and now we have a global labor force, the damage done by ANY inflation in the modern era are going to be far more dangerous. While 30-40 years ago employees could actually go to employers and ask for wage hikes to some degree, and the power of unions were far stronger, now when inflation hits, employees will be laughed at if they ask for wage hikes to compete. Then again, there is little to no inflation in a world where food, energy are excluded and tuition, healthcare premiums, et al are just rounding errors.
There is a lot of talk of the Fed now following the British model, where official inflation has been far in excess of the official target due to the dual mandate. Somehow the Fed believes more and more easy money create jobs... despite the failure of the past three years. So if they will just continue to make money ever easier until the unemployment rate gets back to 5% we have years upon years of the spigot turned to high ahead. [May 19, 2011: Prepare for a Fed Hike... in 2018? So Says Goldman Sachs]
- I’m advocating a more aggressive stance of monetary policy, he told CNBC. I think we should be more aggressive and that frankly makes a lot of people nervous.
- I just think that this is the time to stretch the boundaries a little bit more and take a few chances, he said.
- The economy needs more accommodation. I think the unemploymentt rate at 9 percent is unacceptably high, he said, noting that the jobless rate should be at 6 percent or less. I think we should be doing as much as we can.
- Evans said he was more worried that the U.S. central bank could repeat the errors of the 1930s than those of the 1970s. In the 1970s you had a wage growth. You had the wage/price spiral where prices would go up, workers would demand that wages go up to keep up, and it would keep spiraling upwards, Evans said. I don’t know if anybody expects wages are going to go up to that extent that it’s gonna propel inflation higher.
- If anything, Evans said, there is more downward pressure on wages, and he doesn't see that pushing inflation higher. It’s a different time period. You’re always tempted to fight the last war, he said. The 1970s are the last war. I’m much more worried about the 30s experience in Japan the last 15 years.
Vid 2 - 8 minutes
Vid 3 - 3 minutes