John At The Center

The hawks, she notes, worry that the Fed has pumped too much money into the economy and won’t be able to withdraw it in time to forestall inflation. She says the Fed has the tools it needs to withdraw the money when needed – it can sell the mortgage and Treasury bonds it has accumulated if needed and some of its emergency programs are already tapering off.

Another risk she tries to shoot down is a replay of the 1970s. Back then, the Fed thought that high unemployment meant the economy was burdened with lots of slack that would keep inflation under control. It responded with low interest rates. It turned out there wasn’t as much slack as thought (the nation’s productivity was falling rapidly) and the low rates indeed fed inflation. This time, Ms. Yellen says, the slack is for real. “We are far from the kinds of unemployment rates that would make inflation a danger,” she said.

via Yellen Takes a Big Swing at Inflation Hawks – Real Time Economics – WSJ.