I’m a sucker for long form interviews where they largely just give the transcript. There’s a lot of good stuff from Boston Fed President Eric Rosengren (nonvoting until 2019) in this NYT piece.
Right off the bat, he hits us with this gem:
“A number of papers at the conference highlighted that some of the economic relationships that are frequently assumed to be stable over time have proven to be not so stable as we have come out of the financial crisis. These structural changes mean that if you tried to have a model that was fairly invariant to these changes, or a process that was invariant to these changes, there would start being big misses in monetary policy.” – Rosengren
Let me say that I’m not a conspiracy theory guy. But …
In the back of my mind, I’m afraid that the Fed knows they’ve messed up in a really bad way, and now they’re all making sure they have plausible deniability. During the last FOMC press conference, Yellen talked about the mystery of low inflation:
“This year, the shortfall of inflation from 2 percent, when none of those factors is operative, is more of a mystery, and I will not say that the Committee clearly understands what the causes are of that.” – Yellen
I mean, it’s better than saying “I’m sorry you idiots don’t understand, but we’re very smart over here. Many of us have PhDs.” On the one hand, I appreciate the intellectual honesty here. On the other hand, I worry that every Central Bank in the world has embarked on an unprecedented amount of quantitative easing on the back of very detailed and smart models, and are just now starting to realize that their models might not actually reflect reality. Then again, I’m a worrier.
Back to Rosengren.
“A mystery is unsatisfying. You always like to have an end to the book. My own view as of now would be that, more than likely, we’re going to find that it’s temporary. We’re seeing wages and salaries go up. That’s consistent with a labor market that’s gotten tight enough that it’s starting to be reflected in wages and salaries.” – Rosengren
Hmm, there’s that word again. I never learned the “mystery approach” in undergrad Economics (not to be confused with the Mystery Method, an approach for picking up women popular in the mid-2000s … which I also never learned). However, I wrote about increasing wages in a previous post, here. This seems to me exactly the type of short term fluctuation that he shrugs off earlier in the interview.
Like I said, I’m a sucker for a long form interview, and I recommend that you read the whole thing.