At a speech in Chicago in March, Janet Yellen waxed lyrical about the plight of America’s unemployed.
In preparation for her speech, Yellen talked for more than an hour by phone to three Chicagoans struggling to find work. Then, like a presidential hopeful, she weaved their heartbreaking stories into her speech:
I have described the experiences of Dorine, Jermaine and Vicki because they tell us important things that the unemployment rate alone cannot. They are a reminder that there are real people behind the statistics, struggling to get by and eager for the opportunity to build better lives.
What’s odd about the Fed’s focus on jobs is that the current unemployment rate of 6.3% isbelow the 6.4% average the US economy has experienced since 1970. Never before has the nation’s top central banker delivered such a tear-jerker. And never before has the nation’s top central banker gone to such lengths to personalize the plight of the unemployed to justify Fed policy.
It’s also below the 6.5% target the Bernanke Fed set for keeping the federal funds rate (the rate at which banks lend to each other overnight and the key interest rate in the country) at the “zero bound.”
Here’s what the Bernanke Fed had to say last year about its unemployment target:
| In particular, the Committee decided to keep the target range for the federal funds rate at 0-0.25% and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%. |
We wonder what the market reaction would be if the Fed had kept to its word and started moving the federal funds rate higher once the unemployment rate fell to under 6.5%.
Would US stocks still be rallying? Would the yield on the 10-year Treasury note be just 2.6%… and the yield on the 2-year note be a mere 0.4%?
Unlikely.
The Fed talks a big game on unemployment… and why EZ credit is the key to getting Americans back to work.
The truth is the Fed manipulates the price of credit as it sees fit. When certain objectives are met, it simply changes them to keep the credit economy booming.
Dorine, Jermaine and Vicki are useful PR tools. But Janet Yellen’s “jobs crusade” is just a fig leaf to hide the real reason credit needs to stay ultra cheap: Without it, the whole economy is under threat.
P.S. Don’t forget to check out the latest special report from Diary of a Rogue Economistpublisher Will Bonner. Will recently “spied” on a very elite – and extremely wealthy – group. And he got to see how the richest of the rich make their money… and how they keep it.
