Tea Leaves Say Yellen Might Push for Looser Monetary Policy

| Wed Nov. 6, 2013 11:53 AM PST

Jon Hilsenrath reports on a new Fed study suggesting that monetary policy ought to remain loose for a very long time:

The Federal Reserve could help drive down unemployment faster if it promised to keep short-term interest rates near zero for longer than currently envisioned by officials or investors, according to a new research paper by a top central-bank staff member

....The research paper—written by William English, the head of the Fed's monetary-affairs division and two other authors—argues the Fed's unemployment threshold for rate increases would be more effective if it were lower than 6.5%, possibly as low as 5.5%. In effect that would mean waiting until the job market got much better before raising rates.

....As part of the exercise, Mr. English relied heavily on computer forecasting models known as "optimal control" programs. That's notable because these programs have also been cited by Janet Yellen, the president's nominee to lead the Fed after Mr. Bernanke's term expires, in speeches to defend the central bank's easy-money policies.

I guess this falls into the category of tea-leaf reading, trying to figure out what kind of policies Yellen will push if she's confirmed as the next Fed chairman. Take it for what it's worth.

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