Has “civil war” erupted at the Federal Reserve? The suggestion that it’s close to it, made Friday by Jeff Cox of CNBC.com, is rocketing around the Web in the wake of Chairman Yellen’s ruminations about “temporarily running a ‘high-pressure’ economy.” Mr. Cox reports that “many observers” reckon that means she “favors a lower-for-longer approach when it comes to interest rates,” an “attitude” that “could exacerbate tensions among members of the Federal Open Market Committee.”
How sweet that would be. The Open Market Committee under Chairmen Bernanke and Yellen has been an orchestra of Neros at the Roman conflagration. Mrs. Yellen made her remark about running a high pressure economy after discussing the phenomenon of “hysteresis,” in which, as she put it, “shortfalls in aggregate demand could adversely affect the supply side of the economy.” This is the kind of brainstorm one gets when one employs, as the Fed does, 300 economists in the head office.
The sad truth is that not only is the Fed a long way from a civil war but it has only the most wan of debates. This was marked after Mrs. Yellen’s latest demarche by the Mises Institute. One of its writers, Ryan McMaken, put up a chart showing the average number of dissents per meeting of the Open Market Committee. One would have to go back to The Great Volcker to discover a rate above one dissent per meeting (his rate was 1.23, exceeded only by G. William Miller at 1.4). Mr. McMaken calls talk of a civil war “hyperbole.”
What needs to be marked now is that almost no one is looking to the Federal Reserve – or any other central bank – to solve our economic problem. That is going to have to come from the institution to which our Constitution grants the monetary powers, the Congress, which also is the sole repository of the fiscal and regulatory powers. The good news is that the Congress is on the case, with ready chairmen at Ways and Means and Financial Services and, in Paul Ryan, a savvy Speaker on all the key issues.
All they are waiting for is a president who is prepared to sign reform legislation. Hillary Clinton has campaigned for office on the idea that it is somehow wrong for a candidate to criticize (or, to judge by her example, even discuss) the Federal Reserve. So we are in a situation in which the Congress is ahead of the candidates. Reform legislation has already passed the House and is before the Senate. More is ready to go. That is the way to bring a peaceful conclusion to whatever clouds of civil war are scudding at the Fed.