- - Friday, March 21, 2014

Federal Reserve chairmen are experts at talking up a storm without providing even a sprinkle of information. The Fed’s new leader, Janet Yellen, is no exception. She says she’ll consider “a wide range of information” to determine the central bank’s policies in the days ahead. Whatever that means.

She made this retreat into the vague, the shapeless and the obscure at the end of the two-day meeting of the Open Market Committee, which sets monetary policy. The committee agreed to ditch the unemployment benchmark and cut the bond-buying program from $65 billion to $55 billion per month.

Over the past five years the Fed has been spending those billions every month, buying up mortgage-backed securities as part of its “quantitative easing” scheme to print money to hold interest rates artificially low. This expensive policy was supposed to be temporary, lasting only until the official unemployment rate dropped below 6.5 percent, and it came within a tenth of a percentage point of doing so in January.

Instead of abandoning the easy money policy, the Fed abandoned the unemployment benchmark. On the one hand, it’s true that the official unemployment number has become misleading. As Americans hunting for a job know only too well, the official unemployment rate, currently 6.7 percent, has been falling because frustrated job seekers have quit looking for jobs after years of trying. Hope can only take a discouraged job-seeker so far. The change in the official rate reflects not an improvement in the health of the labor market, but the decline of workers in the workforce. The broader unemployment measure known as U-6, which counts underemployment, has been hovering around 13 percent. The real picture is not getting brighter.

The Fed had further set a goal of keeping inflation under 2.5 percent, but that figure is fantasy, too. The last 12 months have seen an inflation rate of 1.1 percent, using the definition of inflation the Fed prefers, which excludes both food and energy. Food and energy are big-ticket items in the household budgets of real people and have been rising on an upward spiral. The U.S. Department of Agriculture estimates that food prices will go up a further 3.5 percent this year. What this means is the unrealistically low inflation estimates are propping up the easy money.

The Fed’s manipulation of the money supply imposes a heavy cost, especially on retirees and other savers who get little or no return on their investments. According to a 2013 McKinsey report, the Fed’s low interest rate policies cost American households $360 billion. The federal government, on the other hand, is the big winner, saving $900 billion on the cost of financing its $17.5 trillion debt.

Inaccurate as the inflation and unemployment benchmarks may be, they nevertheless provide an objective rough measurement of the Fed’s performance. Under Ms. Yellen, these benchmarks have been replaced by a vague and amorphous discretionary regime empowering the Fed to continue doing whatever it pleases and when it pleases. Low-interest policies enable Washington in its spending habit at the expense of ordinary Americans. Ms. Yellen thus becomes the Great Enabler, no more accountable to reality than the Great Pumpkin. The country deserves better than that.