Must-Read: Martin Sandbu: Free Lunch: Mutiny at the Fed: “Two governors, Lael Brainard and Daniel Tarullo…

…have publicly spoken out against the rush to raise US interest rates. This is significant for a number of reasons. First, because most noises from individual Fed interest-rate setters have been in the hawkish direction. Chair Janet Yellen herself, while not a hawk, has unwisely tied herself to the calendar…. Tim Duy, the most perceptive Fed-watcher out there….On his reading, Brainard lays down a clear marker….Jared Bernstein, too, annotates the key parts of Brainard’s speech…. She judges the risks of things going worse than expected as more weighty than the chance of things going better…. She takes seriously that it is easier to wait too long and then tighten sharply if necessary, than to make up for the damage caused by a premature rate rise. That is because with very low interest rates it is challenging to make policy much looser…. This ‘option value of waiting’ argument is explained by Brad DeLong in a recent comment on Brainard and Duy…. Tarullo relied on the same two points….
Brainard and Tarullo now echo the dovish arguments of outsiders from the left such as Lawrence Summers, when those arguments have seemingly fallen on deaf ears in the rest of the FOMC…. Both the grumbling governors hail from that political milieu… of the Obama administration. Duy’s explanation is… that Yellen’s professional formative years were the high-inflation period of the 1970s (the same is true for vice-chair Stanley Fischer); Brainard’s experience, meanwhile, ‘is dominated by the Great Moderation’…. Paul Krugman offers a nuance: rather than the Great Moderation, he suggests what most shapes Brainard’s economic world view is… ‘internationally oriented macro types were aware earlier than most that Depression-type issues never went away’…. Hawks are now encountering more determined opposition at the Fed. That is a good thing.