The Revenge of the Doves

The recent WSJ article on the relative forecasting results of some of the Fed’s hawks and doves stirred some old memories regarding the hawk/dove divide. I got an unfair reputation as a dove back in 1999 when I dissented in June and again in August from the FOMC’s increase in the target Federal funds rate. That tightening was based on models showing a high likelihood of inflation during a period when actual inflation was still low.

Some in the press called me the Lone Star Loner, being the only dissenter. Others called me a dove. And pretty soon they were putting them together and calling me The Lonesome Dove. While I resented the dove label, my fondness for Texas writer Larry McMurtry and his Lonesome Dove weakened my resistance. I still have a drawing of Robert Duvall’s Gus on my wall. Then my lame defense became “I’m not really a dove—just a kinder and gentler hawk.”

A defense was necessary back then because only hawks went to central banker heaven. Doves need not imply. Hawks probably still have a better shot at it, but during the past few years Mr. Bernanke has at least made this world safer for doves. And, because financial markets have drunk the QE kool aid in recent years, super dove Janet Yellen is probably favored as Mr. Bernanke’s successor. How paradigms do shift.


Comments (11)

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  1. Lewis Warne says:

    So, the revenge of the doves is the consistently low inflation during periods of high unemployment and monetary expansion.

    • JD says:

      I think that he is just saying that times have changed and doves are now in charge.

      • JD says:

        or “in favor”, anyway.

        And a dove would be more concerned about unemployment than inflation.

  2. August says:

    What do you mean by “financial markets have drunk the QE kool aid in recent years”?

    • JD says:

      Probably that markets have responded positively to expansion of the money supply (M3? one of the less liquid ones) and dove policies.

  3. Dewaine says:

    So, if Doves are en vogue, should we be concerned about inflation>

    • JD says:

      I would think so. If she is the successor we’ll have to follow her actions to see how she responds to the climate.

  4. Andrew says:

    I don’t foresee a hawk-centered-led Fed in the near horizon. So far it’s not much of a concern as the QE is helping, but your long-term concerns are shared by me as well.

    • Sal says:

      True, we are still experimenting with our monetary system and there are clearly different ideologies. In the end, when the material world is affected by these strategies, we ought to know to change our economic perceptions and strategies. So far the evidence honestly goes both ways.

  5. Benjamin Cole says:

    Yes, the world has changed. “Super-dove” Yellen has papers published in which she favors a 1.5 percent PCE inflation target.

    Somewhere along the line, central bankers developed a perverted obsession, and peevish fixation on microscopic rates of inflation.

    Is there the slightest evidence that such low rates of inflation actually bring about more robust and sustained economic growth?

    Japan for example?

    And…so you get low rate of inflation….then you also get low interest rates. And then you hit a recession….and, you cut interest rates…but wait, you hit zero bound soon.

    And that means then that QE must be the answer.

    Oddly enough, if you target 1.5 percent PCE inflation, then you must also say, “And QE will be our weapon of choice to fight recessions.”