Yellen Wants Fed To Commit To Future Booms To Make Up For Busts

Former Fed Chair Yellen promotes “Lower for Longer”, a policy in which the Fed knowingly keeps interest rates too low.

Here’s the asinine policy proposal of the day: Fed Should Commit to Future ‘Booms’ to Make Up for Major Busts.

The U.S. Federal Reserve should commit to letting economic booms run on enough to fully offset collapses like the 2007 to 2009 Great Recession, former Fed chair Janet Yellen said on Friday, urging the central bank to make “lower-for-longer” its official motto for interest rates following serious downturns.

Elaborating on how the central bank should think about what to do if rates have to be cut to zero again in the future and can’t go any lower, she said the Fed should promise now that it will keep rates low enough to let a hot economy make up for lost time.

“By keeping interest rates unusually low after the zero lower bound no longer binds, the lower-for-longer approach promises, in effect, to allow the economy to boom,” Yellen said in remarks delivered at a Brookings Institution conference. “The (Federal Open Market Committee) needs to make a credible statement endorsing such an approach, ideally before the next downturn.”

What We Are Doing Already

The official policy is what we are doing already. May as well make a policy out of it.

The caveat, of course, is the Fed does not realize what it’s already doing.

[email protected]@ Backward

There is one more major flaw. It’s [email protected]@ Backward. We have major busts because the Fed blew major bubbles.

The dotcom bubble arose when Fed Chairman Alan Greenspan held interest rates too low, too long with irrational fears of a Y2K disaster.

The housing bubble was a direct result of Greenspan holding rates too low, too long in the wake of dotcom and 911 disaster.

The everything bubble, which we are in now, was co-authored by Ben Bernanke and Janet Yellen. They held interest rates too low, too long in the wake of the housing bubble crash.