Fed Recognized Change in Unemployment Goal Could Be Misunderstood
The unemployment rate for the past 4 months has remained
fairly constant around 6.7%. Although the unemployment rate has been declining
over the years, its fixed status is concerning for some. However, Janet Yellen
and the Fed are not worried. They believe that although supply of labor is
greater than demand for labor, it will soon be at the natural rate. The Fed is
optimistic that the unemployment rate will decrease in future months. Therefore
they are now using a policy by rule. The Fed has “confidence in the strength of
the economic recovery” and will begin to contract. They are reducing “its
monthly bond purchases by $10 billion, to $55 billion” and they plan on
continuing.
I think it's normal for the natural level of unemployment to change after a recession. 6.7% is not a far leap from 5% and the recession was large enough to have had such a strong impact on macroeconomic indicators. The improving of the stock market does not seem to be a reliable indicator to me. Thanks for sharing!
ReplyDeleteI think what the Fed is doing is great, letting everything change on its own time. This way of doing things might be hard in the short run but in the long run it should payoff.
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