What can we expect from a Federal Reserve helmed by newly nominated chair Janet Yellen? Unlikely as it may sound, we can draw insight from a decade-old misinterpreted remark.
In November 2002, as the US economy was emerging from recession, Federal Reserve Governor Ben Bernanke delivered his now infamous “Helicopter” speech – during which he recalled Milton Friedman’s jocular depiction of dropping money from helicopters as a last-ditch means to fight deflation.
“A money-financed tax cut is essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money,” Mr Bernanke said, using the analogy to combat fears of imminent deflation which had driven the yield on the 10-year US Treasury note below 4 per cent, the lowest yield since the early 1960s.