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Who's afraid of inflation? Not Fed Chair Janet Yellen.

In true Fed Chair form, Yellen said a lot without really saying a lot.
In true Fed Chair form, Yellen said a lot without really saying a lot.
Win McNamee

Janet Yellen gave a speech on the labor market today at the Fed's annual Jackson Hole getaway. In true Fed Chair form, she gave a lot of information without making any real news.

It's not that she didn't say anything useful; if you're interested in understanding the nuances of the labor market, the speech really is a great place to start, with over 3,600 words of thorough examination of wages, inflation, slack, and discouraged workers. Most of it, however, is material she's covered many times before. It wasn't really news.

But there is at least one real takeaway message from Yellen's remarks: she isn't afraid of a little inflation. Though the Fed has often repeated it has a long-term inflation goal of 2 percent, Yellen made it clear that 2 percent isn't a hard threshold. As higher real wages lure some people back into the labor market, she said, it could ultimately dial back wage and price pressures.

"[T]ightening monetary policy as soon as inflation moves back toward 2 percent might, in this case, prevent labor markets from recovering fully and so would not be consistent with the dual mandate," she said.

Though the Fed has never actually said that hitting the 2-percent mark will immediately trigger higher interest rates, Yellen stating this outright made a timely point: markets shouldn't be surprised if the latest pickup in inflation doesn't lead to major, immediate policy changes.

All of this fits into a bigger narrative. More broadly, what appears to be happening is that the Fed chair is leaving options open as the Fed winds down an unprecedented level of monetary stimulus. In the same speech, she also emphasized the Fed would be flexible on interest rates, keeping them lower for longer or raising them sooner than expected, depending on what the job market does.

As Yellen put it, "As I have noted many times, monetary policy is not on a preset path." Expect to hear her note that many more times.