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Yellen And Fischer Still Singing From The Same Song Book


Many see Yellen and Fischer at odds over benefits of high pressure economy.

However, this fails to put the comments in the proper context--same message different styles.

They are arguing against the doves who don't want to hike this year.

Many observers are puzzled. The last FOMC meeting showed three regional presidents felt sufficiently convinced of the need to hike rates immediately that they chose to dissent.

On the other hand, the dot plots showed three officials did not think a hike this year is warranted. There is some speculation that one or two of these dots belonged Federal Reserve Governors (Brainard and/or Tarullo). The perception is that a Governor dissent is less common and is more significant than dissent from a regional Fed President.

The Fed's leadership faced a dilemma in September, and this dilemma has been expressed a "close call." Essentially, the choice was between which set of dissents are more acceptable. In this narrative, Yellen chose to face the regional President's dissents, and we suspect allowed for a higher number of dissents to also underscore the knife-edge decision.

Nevertheless, the arguments of those who do not think a hike is appropriate this year, especially if they have been articulated by Governors, need to be addressed. It is in this context that Yellen and Fischer's recent comments need to be understood. In their own ways, they both argued against the arguments that suggested to wait for inflation to be at the target before raising rates or raising the inflation...