Fed Finally Decides to Give Us a Better Recovery

Zachary Goldfarb:

The Federal Reserve will take steps to bolster the economy until the unemployment rate falls to 6.5 percent or inflation looks likely to exceed 2.5 percent, the central bank said Wednesday in a historic move that for the first time specifies the Fed’s goals for the nation’s economy.

The Fed also said it would buy $45 billion in Treasury bonds a month, on top of $40 billon a month it is already buying in mortgage bonds, in an effort to flood markets with money and reduce interest rates on a wide range of loans. Lower interest rates tend to stimulate borrowing, economic activity and employment.

In an unprecendent move, Federal Reserve Chairman Ben Bernanke announced Wednesday that the Fed will continue to try and boost the economy until unemployment numbers hit 6.5 percent or the inflation rate reaches 2.5 percent.

The actions signaled the Fed’s concerns that high unemployment — what Fed Chairman Ben S. Bernanke called “an enormous waste of human and economic potential” — will cast a long shadow over the nation for years. Fed officials projected that the jobless rate, now at 7.7 percent, would not reach 6.5 percent until near the end of 2015 at the earliest.

This is still pretty weak, but moving in the right direction. A real commitment to full employment would be more like a 4% unemployment target or 4% inflation.


  1. Your assumption is that these weren’t targets before the announcement was made… Goldfarb is deficient in this as well.

    The historic aspect here is that they’ve made these targets public.

    Fact is we don’t know if these targets were changed or are new.

    • Jon Geeting says:

      Right, the clarity of the statement is the change. Instead of a vague calendar target like mid-2015, they’re targeting actual economic conditions.

  2. But then you make the same error in your 2nd sentence!

    You’re assuming they had no targets before, and I seriously doubt that.

    • Jon Geeting says:

      I was referring to their public statement. Before, investors were only hearing mid-2015. Now, they’re hearing 6.5% unemployment or 2.5% inflation. Probably not a big jump from what people were expecting anyway, but now there’s actually some conditions-based metric to judge Fed policy by.

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