Yellen’s Steady Course

I don’t pretend to be someone who can interpret the delphic statements released by the Federal Reserve Board following its Open Market Committee meetings. It is clear they are painstakingly constructed to minimize any impression of significant change, and to meet expectations so exquisitely that destabilizing market reactions are avoided.

It’s also clear that under Janet Yellen’s leadership the Fed is fending off increased pressure from the usual suspects to begin tightening the money supply to forestall even the ghost of inflation, even if that is at the expense of those being left behind by the current “recovery.” And indeed, Wonkblog‘s Matt O’Brien thinks the crux of the quiet internal dispute is that Yellen isn’t ready to give up on the long-term unemployed:

The biggest question about the economy today is whether the millions of people on the margins of the work force will rejoin it. Alan Krueger, former chair of the President’s Council of Economic Advisers has found that the long-term unemployed rarely do — which would mean there isn’t as much slack in the economy as we think, and inflation will pick up. But Fed researchers dispute this, and their own work shows that the short-term and long-term unemployed exert equal downward pressure on wages.

It’s a debate that, the Wall Street Journal reports, even carried over to a wedding that Yellen and Krueger both attended — only to be broken up by dance music. But, at the Fed at least, she’s won it. Though Yellen admitted that “it’s conceivable there is some permanent damage” to the long-term unemployed, she was still optimistic that a faster recovery would pull more people back into the labor force.

Good for her. Inflation remains a distant mirage. The long-term unemployed are very real. The Fed shouldn’t reverse those perceptions.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.