Sunday, October 23, 2011
Vice Chairman Yellen - "yellin'" for QE3
Fed Vice Chairman Yellen sent a clear message in a Denver speech on Friday that "careful consideration" should be given to apply more stimulus. Yellen noted that Operation Twist is limited because there are only so many intermediate bonds that can be sold in exchange for longer term Treasuries. This view suggests that a lot more stimulus is needed to push long-rates lower and drive inflation higher. The objective of any QE program is to push prices higher of both financial and real assets as well as wages.
This view for more easing has been matched by a recent proposal by Chicago Fed president Evans that the zero interest rate policy should be tied to a specific unemployment rate or inflation rate. This would be code for more stimulus, but with a constraint.
There is no one voice for the Fed. This is a problem in determining what will be the actual action of the Fed. It would be better if there was more clarity