Newly released transcripts from Federal Reserve meetings in 2010 show that then-Federal Reserve Vice Chairwoman Janet Yellen was an early proponent of many of the unconventional stimulus policies the central bank would adopt.
Now the head of the Fed, Yellen was one of the members of the Fed’s monetary policy committee in 2010 who expressed the most certainty about starting the large-scale bond-buying program now known as “QE2,” according to the transcripts. The Fed released the transcripts Friday morning, following the regular procedure of publishing them on a five-year lag.
“First, the outlook for employment and inflation are dismal,” Yellen said at the November 2010 meeting after which the Fed started the quantitative easing program. “We will miss both objectives by a country mile for years to come.”
Some members of the committee suggested that conditions were not bad enough to warrant the bond-buying program. Yellen suggested that not only was it necessary, but that the planned $600 billion in bond buys might not be enough. She anticipated that the Fed might buy as much as $1 trillion in bonds. In fact, the Fed would end the program after $600 billion in purchases, only to start a new and much larger round of quantitative easing in 2012.
When the Fed resumed quantitative easing in 2012, it did not limit itself to a specified amount. Instead, it left the purchases open-ended, telling the public that they would keep adding stimulus until the unemployment rate had dropped a certain amount.
As early as October 2010, Yellen supported that approach, the transcripts show.
St. Louis Fed President James Bullard, she said, won her over to the “continuous approach” of buying bonds. If it worked, she noted, markets would “anticipate” the Fed’s moves to incoming data about unemployment and other economic factors, making the Fed’s monetary policy more efficient. In recent years, the Fed has moved more toward that style of monetary policy.
At that same meeting, Yellen said the Fed would likely have to commit to a specific inflation target. At the time, the Fed didn’t have such a target, and Yellen warned that it could cause confusion if and when different members of the committee communicated differing inflation targets to the public.
In that case, she said, “the committee would have to agree on a single objective. That would be a more significant step, I think, requiring consultation with the Congress.” The Fed would eventually take that step in January 2012.
Yellen also indicated an openness to even more aggressive measures by the Fed to bring the economy back to health, with the unemployment rate still over 9 percent.
Targeting a price level could be “extremely effective,” Yellen said. Targeting a price level rather than an inflation rate would mean the Fed keeping money looser. Yellen also expressed support for the policy of targeting nominal Gross Domestic Product, an approach favored by critics who have charged that the Fed kept money too tight throughout the recession and recovery.
