Randomly Noted

This may be a case of  over-the-top tea-leaf reading.

So, by definition, it will be convoluted. But here goes. My interpretation of some comments made today byFederal Reserve Vice Chair Janet L. Yellen indicates the central bank will feel no rush to remove the famous “extended period” language from its post-meeting statements.

The reason for that, essentially, is that Yellen thinks the Fed’s conditionality around that phrase has been sufficient to allow market participants to change their views about when the central bank may finally come off its long-standing emergency easy policy, which features zero short-term interest rates. Said another way, the phrase “extended period” is flexible.

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The U.S. footbal analogy is this: the Federal Reserve is like a runner who has picked up a lot of yards, but now wants to lateral the ball to another runner. The question is whether that second runner is available and what he will do with the ball.

A tortured analogy. Guilty as charged. Federal Reserve Bank of Dallas President Richard Fisher prefers maritime analogies.

The Fed “has helped raise the tide” he told Dow Jones Newswires reporter Michael Derby today in a video interview broadcast via WSJ.com. But a lot of U.S. employers’ boats’ “are still tied to the dock or they’ve sailed to foreign ports,” where the regulatory climate is presumed to be more favorable.

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Watch the money supply.

That much-neglected-in-recent-years indicator of economic activity might come at least temporarily back into vogue as a way to gauge what the Federal Reserve thinks of the pace of progress of the U.S. economy.

That’s a bit of tea leaf reading from the minutes of the Dec. 14 meeting of the Federal Reserve’s policy setting Open Market Committee, released today after the usual lag. Before we delve further and broaden out the concept above with a quote from the minutes, we’ll make this assertion:

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All we need are jobs.

The U.S. economy, as described by the U.S. Federal Reserve and based on incoming data such as mildly encouraging holiday shopping to date, is doing all right. There is growth. The haves (those with jobs) are a bit more confident they will stay employed and are therefore spending more.

The have nots without jobs remain in too high numbers.

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Federal Reserve Chairman Ben Bernanke made clear he is ready for prime time.

In a presumed effort to counter critics of the U.S. central bank’s $600 billion Treasury bond buying plan to spur the economy, Bernanke took to the airwaves via a Sunday broadcast interview on the popular CBS news program 60 Minutes. Fed chairmen of an earlier generation would be shocked at the straight forwardness of it all, though leaders like to talk on television because they feel they can get their points more directly across.

Bernanke didn’t break any big news on 60 minutes, but that wasn’t the point.

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The U.S. Treasury Secretary got his tense wrong.

“It is very important to keep politics out of monetary policy,” said Treasury Secretary Timothy Geithner on Friday, in a Bloomberg television interview.

Really, he should have said it would have been nice to have kept politics out of monetary policy. They are in, big time. Politics and the Federal Reserve may have traditionallly enjoyed an arms’-length relationship, but they were never completely separate. Now they are in a bear hug.

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Less than a year after Congress came too close to seriously impinging on the crucial monetary policy independence of the Federal Reserve, a much more reasonable idea about the Fed’s role is emanating from the national legislature.

Championed by a couple of conservative Republicans, the latest notion is to make the Fed more like other central banks. Like the European Central Bank, for instance.

The way to do that, according to Rep. Mike Spence, R-Ind., and Sen. Bob Corker, R-Tenn., is to halve the “dual mandate” the Fed has been trying to fulfill for the past 33 years. That dual mandate, put simply by Eric S. Rosengren, president of the Federal Reserve Bank of Boston, involves trying to achieve “the lowest possible unemployment rate consistent with price stability.”

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Call it the authoritarian advantage.

The notion gets tossed around all the time in macroeconomic discussions. In difficult economic times, non-democratic countries have an advantage. They can make fast decisions by fiat, steering their economies as they see fit. In democracies, of course, things are messier and slower.

Of course, no one here is advocating dictatorship, economic or otherwise. The freer the economy and the citizen the better. But it is worth noting in these troubling times, America is following an expected pattern in which so-called economic and business elites believe in certain paths to economic improvement and growing numbers of voting citizens think otherwise.

Call it a populist backlash.

Example one is the bank bailout. Lots of people now call TARP (Troubled Asset Relief Program) some variant on the best program that also managed to be the most hated. Many people understand that letting the financial system collapse in 2008-09 would have meant greater disaster for everyone, but having voted for bank bailouts is now no badge of honor for politicians seeking re-election.

Trade is another one. It wasn’t long ago there was a pretty broad coalition in the U.S. that believed the freer the trade, the better. The U.S. would benefit because from agriculture to banking services to manufacturing equipment, we had some useful things to sell the world.

Sure, many unions and other advocates of manufacturing workers, whose jobs could easily be shipped abroad, stood long opposed to freer trade, but they now have lots of company. It’s understandable that when jobs get scarce people want to build walls around the jobs that remain, but such policies, especially if widely adopted by nations, will hurt everyone.

The U.S. Federal Reserve is expected to embark on another round of quantitative easing to help spur the stuck-in-the-mud economy. The essential increased printing of money to buy Treasury securities will hurt the value of the dollar, but the Fed believes a stronger level of inflation and even higher inflation expectations are needed to get people and businesses spending again, eventually increasing employment and keeping the scary deflation monster at bay.

But the notion of higher inflation, especially engineered by a central bank, likely won’t sit well with many people. In a recent issue of The New Yorker magazine, James Surowiecki cited a 1996 study by the well-known Yale economist, Robert Shiller, that showed “sizable majorities” of people globally are dead set against inflation, even in a trade-off for higher employment.

That might well be a reasonable stance, because once ignited inflation and its expectations are tough to tame. Also, the Treasury bond buying plans bythe Fed might simply not work. At least Fed officials don’t have to worry about getting re-elected.

People in Congress do, and that’s why it’s a pretty sure bet there won’t be another big round of fiscal stimulus coming, absent an economic disaster. Too much worry about the giant federal deficits already created.

Even though, abstractly at least, the case could be made the Fed’s efforts would have a better chance of success if there was a stimulative assist from fiscal policy, leaving the essential and extraordinarily diffiicult deficit reduction issue for another day.

For the U.S. Treasury Secretary, there are probably no fun days and less fun days. Maybe history will look more kindly, but it’s tough sledding right now.

Today was likely one of those less-fun days for Treasury Secretary Timothy Geithner. He had to appear before angry committees of the Senate and House of Representatives and tell them why retaliatory measures against China for controlling its currency are not the way to go.

Today must have been as much fun for Geithner as heading to Capitol Hill to defend the big bank bailouts. Actually today was probably less fun. Because there are defenses of bank and AIG bailouts, however unpopular they have become from a rear view mirror view.

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“It doesn’t do the chairman any good to have everyone sit around the table and tell him how smart he is” and that his policies are the right ones.

The chairman in question is Ben Bernanke, leader of the U.S. Federal Reserve. The speaker is James Bullard, president of the Federal Reserve Bank of St. Louis, who spoke today with a group of reporters and editors from Dow Jones Newswires and The Wall Street Journal.

The quote was a partial response to a question from this columnist, who offered the notion that Bullard seemed to be the pre-eminent member of a small club of central bank policy makers who have lately spoken more forthrightly on pertinent issues, such as quantitative easing, than is the tradition among central bankers.

Late last year, we referred to Bullard as a breath of fresh air for that very practice. And the recently installed president of the Federal Reserve bank of Minneapolis, Narayana Kocherlakota, sprinkled a recent speech with provocative talk about structural problems in the U.S. labor market, among other issues. Meanwhile, the president of the Federal Reserve Bank of Kansas City, Thomas Hoenig, has become the lone serial dissenter, insisting the economy is healthy enough to survive merely easy monetary policy, rather than the emergency zero short rates that we have had for some one and three-quarter years.

Substantively today, Bullard repeated his view that the Fed needs to stand ready to take further action if the economy falters and already below-target inflation dips more dangerously towards deflation. He believes the best way to achieve this would be through incremental purchases of Treasury securities. He said he doesn’t think further action will be needed.

Those views areen’t very different than those expressed recently by the aforementioned chairman, Bernanke.

Citing his own bona fides that include 20 years of monetary policy work (and two-plus years as the St. Louis Fed leader), Bullard said today Bernanke is not fazed at all to hear different ideas about the state of the economy and potential Fed responses.

As for outreach, much appreciated by journalists and of real value to all interested citizens, Bullard said the Fed needs buy-in to have effective policy.

“These are extraordinary times for monetary policy,” Bullard said, making it incumbent on people in the system to explain things as best they can. Bullard is currently a voting member of the policy setting Federal Open Market Committee.

Indeed, those policies will be more effective if they are better understood by the public, he said.

Another part of that impudent question went something like this: had there been any pushback in Washington against Bullard’s plain speaking. There’s been “no pushback at all,” he said.