The first (substantive) paragraph in the Fed's Vice Chairman's remarks is this:
> Although the economy has continued to recover and the labor market is > approaching our maximum employment objective, inflation has been persistently > below 2 percent. That has been especially true recently, as the drop in oil > prices over the past year, on the order of about 60 percent, has led directly > to lower inflation as it feeds through to lower prices of gasoline and other > energy items. As a result, 12-month changes in the overall personal > consumption expenditure (PCE) price index have recently been only a little > above zero (chart 1). full remarks at http://www.federalreserve.gov/newsevents/speech/fischer20150829a.htm Whatever about Fischer's views, and there is much to say about those, I will comment only on the first sentence. Interesting -- no, shocking -- that the Fed here confesses to a "maximum employment objective." The idea that 5.2% unemployment is full employment has been expressed frequently by Fed officials, including regional bank Presidents, e.g. the president of the San Francisco Fed. To call 5.2% "full employment" is, I will say, ridiculous, but to confess that it is "our maximum employment objective" is to reveal powerful policy officials detached from the economy. 5.2% of a total labor force that has been sharply reduced by people no longer participating is not 5.2% of what the labor force was eight years ago. Those non=participating still exist, but not in Stanley Fischer's analysis here. In the 1960s the national policy consensus was that 3%, not 5.2%, was full employment. Whether 3% was actually some real number or whether a lower number,, perhaps 2% was full employment depends on which side you are on. In the Kennedy administration the realists announced that driving unemployment down to 4% was an achievable goal. So how did 5.2% (note the precise decimal!) get to be agreed upon? When did the Fed switch from "full employment" to "our maximum employment objective"? I missed that announcement. Gene PS If Fischer rather than Janet Yellen has the votes, we can take this speech as an announcement of a September increase in the targeted interest rate. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
