The Perfect Negative Indicator Weighs In
The U.S. Federal Reserve has done all it can do to reduce unemployment and needs to worry more about the risk of inflation from the stimulus it poured into the economy, former Fed Chairman Alan Greenspan said on Sunday.
But didn’t we just Get All That Money Back? [link added]
Greenspan’s reason unemployment will go down soon: GOVERNMENT JOBS:
Greenspan said he expected the U.S. unemployment rate, which is currently at 10 percent, to “be significantly lower a year from now” but still very high.
The U.S. Census Bureau’s plan to hire close to 800,000 workers by April will take several tenths of a percent off the unemployment rate, he said.
Let’s ignore that 800,000 temporary hires won’t balance the 900,000 jobs to be lost on the state level next year (h/t Brad DeLong) And let’s ignore that temporary jobs are, by definition, “frictional” and not “structural” employment.
But let’s not forget, as Ben Bernanke did,* that, as noted by Dean Baker, “the dual mandate [of the Fed] is full employment (defined as 4.0 percent unemployment) and price stability.” [emphasis mine].
10.0% is not 4.0%. Indeed, 9.3% (10.0-0.7) is not 4.0%. So unless there is a miraculous 5.3% of other employment coming Real Soon Now (and I don’t even see Daniel Gross predicting that, let alone Mark Thoma or Paul Krugman), the Fed, as has been standard under Bernanke, is missing its targets.
The Fed has already lowered short term rates to near 0% (see your previous post). What can it possibly do to to increase employment?
PGL has a take on a near 0 per cent environment.
I must (gulp) agree with sammy. The Fed has done more to boost economic activity in the current policy cycle than ever in its history. It has utterly used up its most effective tool, gone wild in backstopping liquidity for troubled firms and bought all the MBS it could get its hands on, along with one or two Treasuries.
Insisting that the Fed be judged on the “yes or no” of whether it simultaneously hits all its targets all the time rather misses the fact of the business cycle. Did Bernanke, all by himself or in substantial measure, cause the Great Recession? If not, then “the Fed, as has been standard under Bernanke, is missing its targets” is simply miean-spirited blather.
I believe Ken is commenting on Greenspin’s recent comments concerning inflation and the need to raise Fed rates even before “some” semblance of full employment is reached. I would add the unemployment rate for men 25-54 is ~18% after NILF is considered.
Couldn’t the Fed change inflation expectations? Aren’t we a lot worse off with one side of the inflation / employment situation severely outta whack than we would be if the Fed missed both targets by a little? Would we be better off with a 3% inflation target, as DeLong has suggested?
Given that the dual mandate is inconsistent, the Fed has to miss the target on one in order to achieve the other. And in the past there’s been a willingness to abandon one goal for the other: Volcker is lionized for curing inflation at the cost of a nasty bout of unemployment. It seems to me that were the fed to signal a willingness to attempt a more balanced approach by moving a little bit on “price stability” that could serve to help the unemployment situation.
Sometimes you have shot your credibility to completely it can never recover. Are you hearing me, Alan (Greenspan)?