As in defense policy, there are hawks and doves in monetary policy.

The hawks include the representatives in the central banks who attach great importance to monetary stability and usually call for a tighter monetary policy very early on.

In contrast, the representatives of an expansive course that supports the economy are referred to as pigeons.

During her time as President of the Federal Reserve (Fed), Janet Yellen was counted among the pigeons.

Even today as Treasury Secretary of the United States, she can still be assigned to this camp, which she has now confirmed with her inflation expectations.

Markus Frühauf

Editor in business.

  • Follow I follow

Yellen expects inflation to weaken by the end of 2021.

Yellen said in Atlanta on Wednesday that they expect monthly inflation rates to fall to a level that is compatible with the Fed's interpretation of price stability.

Compared to last year, inflation will remain high due to the ongoing effects of the virus pandemic.

Yellen reiterated her view that the current high inflation rate was a temporary effect of supply shortages and shifts in spending demand caused by the pandemic and economic recovery.

Inflation rates in the United States have recently soared to levels that can hardly be reconciled with the Fed's inflation target of 2 percent, even if it is interpreted as flexible and no longer static, similar to that of the European Central Bank (ECB). Inflation is said to average 2 percent over a longer period of time, which includes falling below it temporarily as well as overshooting it. But the discussion has already begun at the Fed as to when the very expansionary course should be slowed down with bond purchases of 120 billion dollars a month. The hawks in particular are pushing it. Robert Kaplan can be counted among them: The head of the Fed branch in Dallas is calling for bond purchases to be curtailed. The Fed should start reducing purchases soon and gradually,he told the Reuters news agency. That would give the central bank more flexibility to be more patient with the question of rate hikes.

A representative from the Texas Fed will not be a voting member on the Fed's Open Market Committee again for two years. However, calls for a throttling of the purchase program are also being heard in this committee. Fed President Jerome Powell said after the most recent meeting at the end of July that the economic data had not yet shown the substantial progress that would prompt a reassessment of the purchase program.

On the other hand, Kaplan now advises an adjustment in purchases if the US labor market had made further progress in July and August. This should be done gradually over a period of about eight months. That would give the Fed leeway to be patient with the interest rate, which in turn would allow further progress in the labor market. In June, Kaplan was among a minority of Fed members who thought a rate hike in the United States might be appropriate as early as next year. The Fed majority saw 2023 as a suitable date for this. The US key interest rate is currently close to zero percent. Kaplan questions the effectiveness of the bond purchases. They wouldn't do much to boost the job market. This is not slowed down by a lack of demand, but rather by supply problems.