Maybe.
Brad DeLong thinks so.
To me it sounds like they are explicitl stating a 6.5 percent unemployment target and a 2.5 percent inflation target. 6.5 percent seems high as a target (CBO's NAIRU estimate is 5.2, which means the Fed wants to err well on the side of decelerating inflation), but it would be awfully nice to see relative to what we've got now.
The idea that this is considered "state dependent" policy is interesting and depressing to me. The point is that they will keep doing monetary stimulus until they reach that point. So exactly when didn't they have an inflation and unemploymenet target? And if they haven't had one for this long (which really is quite incredible), it makes me worried about how fast they are pursuing this target.
Targets are great, but in and of themselves they're meaningless. What's the reaction function? It's one thing to say you will keep stimulus on until this is achieved, but are you tip-toeing towards it or taking serious action?
Brad thinks this is good news. I see a goal 1.3 percentage points on the wrong side of stable inflation. If the goal is this timid it seems reasonable to me to think the pursuit of the goal is going to be timid as well.
Washington is broken, and not in the way that everyone seems to think. This is all very depressing.
Hopefully I'm wrong and this is a good thing.
Wednesday, December 12, 2012
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These are thresholds, not triggers. That is an important distinction, I think. As Mike Woodford says: "The explicit thresholds mentioned today are not ones that will be reached as soon as a federal funds rate above 25 basis points would be dictated by a reaction function estimated on the basis of the FOMC’s pre-crisis decisions, and in that respect the announcement should change the forecasts of future Fed policy of at least some market participants. A more explicit discussion should also reduce some of the considerable uncertainty about Fed policy that has resulted from the series of unprecedented actions taken over the past few years. While the quantitative thresholds announced are not the ones that I have advocated, they represent a substantial improvement upon the date-based approach to forward guidance that continued to be used in the September and October FOMC statements."
ReplyDeleteBrad DeLong
You're right that the sheer conservatism (right-wingery?) of this shows brokenness in Washington, but in exactly the way which the average DailyKos reader thinks Washington is broken. :-)
ReplyDeleteAnd it's still good news because it means the thinking in the Beltway Bubble is *finally* shifting slowly towards reality. A little.