Bernanke's Right Hand Dove, Janet Yellen, Hints At ZIRP Through Late 2015

Last week we had the Fed's hawks line up one after another telling us how no more QE would ever happen. We ignored them because they are simply the bad cops to the Fed's good cop doves. Sure enough, here comes Bernanke's right hand man, or in this case woman, hinting that one can forget everything the hawkish stance, and that ZIRP may last not until 2014, but 2015! Which, by the way, is to be expected: since ZIRP can never expire, it will always be rolled to T+3 years, as the short end will never be allowed to rise, until the Fed has enough FRNs in circulation to absorb the surge in rates without crushing the principal, as explained yesterday.

From her speech:

Cne can then employ the dynamics of one of the Federal Reserve's economic models, the FRB/US model, to solve for the optimal funds rate path subject to a particular loss function. Such a policy involves keeping the funds rate close to zero until late 2015. This highly accommodative policy path generates, according to the FRB/US model, a notably faster reduction in unemployment than in the baseline outlook. In addition, the inflation rate runs close to the FOMC's longer-run goal of 2 percent over coming years. According to the specified loss function, and in my opinion, this economic outcome would be more desirable than the baseline. One reason this exercise generates a better outcome is because it assumes that the Federal Reserve's inflation objective is fully credible--that is, all households and businesses fully understand the Federal Reserve's goals and believe that policymakers will follow the optimal policy designed to meet those goals. This belief ties down longer-term inflation expectations in the model even while it allows the lower interest rate to spur faster growth in output and employment.

Oh and this:

Nonetheless, the risk that continued high unemployment could eventually lead to more-persistent structural problems underscores the case for maintaining a highly accommodative stance of monetary policy.

All of which explains why the EURUSD just took off. Incidentally none of this should come as a surprise to our readers: recall "Here Is Why The Fed Will Have To Do At Least Another $3.6 Trillion In Quantitative Easing" and of course "Putting It All Into Perspective." In a nutshell, there is at least another $3-4 trillion in more easing before this show is over. There is just the trivial issue of gas prices and election years to deal with but that too shall pass... in 7 months. After that, it's no holds barred CTRL+Ping.