Janet Yellen's Little Secret

Losing her patience?
(AP photo)

Reading the Fed’s tea leaves has never been easy, and involves dark arts first summoned during the Cold War by Sovietologists peering at week-old issues of Pravda to see which Soviet leader was standing closest to the Premier. Now Fed watchers are stuck trying to figure out if Janet Yellen is still patient or now only mostly patient when it comes to raising the prime interest rate:

Surrounding the Fed’s policy meeting this week is the widespread expectation that it will no longer use the word “patient” to describe its stance on raising interest rates from record lows.

The big question is: What will that mean?

Many economists say the dropping of “patience” would signal that the Fed plans to start raising rates in June to reflect a steadily strengthening U.S. job market. Others foresee no rate hike before September. And a few predict no increase before year’s end at the earliest.

Complicating the decision is a surging U.S. dollar, which is keeping inflation far below the Fed’s target rate and posing a threat to U.S. corporate profits and possibly to the economy.

The Fed instituted ZIRP to avoid a deflation trap, but now we appear to be stuck in a ZIRP trap. The only way out of either, or perhaps both, is a long and sustained surge in real GDP growth — along with the accompanying increases in productivity and in wages. Instead, we have the Federal Behemoth waging war on the private sector, and Wall Street types waiting for Yellen to say/not say the magic word.