Analysis: Janet Yellen could turn out to be ‘quite hawkish’
Like her or dislike her, the thing almost everyone who talks about Janet Yellen agrees on is that President Obama’s nominee to chair the Federal Reserve is a dove. Doves, in monetary lingo, worry more about unemployment than inflation.
But economists John Ryding and Conrad DeQuadros, co-founders of RDQ Economics in New York, argue in their latest newsletter that Yellen could turn out to be “quite hawkish in response to higher inflation or lower unemployment.”
Ryding and DeQuadros base their analysis on a close reading of Yellen’s papers and speeches stretching from her academic career at the University of California at Berkeley through her presidency of the Federal Reserve Bank of San Francisco and on up to her current post as vice chair of the Fed’s Board of Governors.
Patching together various formulae she has invoked, they create what they call the “Yellen Rule” for setting the federal funds rate. That’s the rate on overnight loans of reserves between banks.
The Yellen Rule, they say, is the following:
r = 13 + 1.5*p -2*U
r equals the federal funds rate
p equals the Fed’s preferred measure of inflation
U equals the unemployment rate
Today the Yellen Rule would call for a federal funds rate of 0.13 percent:
0.13 = 13 + 1.5*1.15 – 2*7.3
