There´s been a lot of “Yellen soul searching” lately. Gavyn Davis at the FT weighs in:
Ms Yellen is, of course, routinely described as one of the most dovish members of the FOMC and her speeches since moving to Washington as Vice Chair in 2010 have usually been one notch to the dovish side of Mr Bernanke himself. Recent speeches have established that she believes that interest rates should be held at zero for a longer period than would be implied by a normal Taylor Rule, even if inflation rises above 2 per cent for a while.
A devoted advocate of transparent communications, she firmly believes that the Fed should give explicit forward guidance about holding rates “lower for longer”, guidance which may need to be strengthened as the FOMC begins to taper its asset purchases. This could be her first task if tapering starts after she takes office in February.
On the precise date of tapering, Ms Yellen has offered five labour market tests which are usefully summarised in this brief paper by my colleague Juan Antolin-Diaz. Several of her indicators have improved somewhat since QE3 was launched, but not by enough to make early tapering an obvious decision.
Read the whole article here.