The article explains, that the natural rate of unemployment is a combination of structural and frictional unemployment. The Fed is tasked with eliminating unemployment completely however, instead uses a prediction of a level of unemployment in the long term that can still allow the country to sustain itself as its measure of the natural rate. The principle, is that all members of the workforce should be able to get jobs but due to various factors like new technologies replacing workers in structural unemployment, full unemployment is nearly impossible. The economists at the Fed use government spending as the tool to manage unemployment, but this can be tricky as in normal times when unemployment is not very high, they run the risk of inflation. This is caused by higher wages which likely would result in higher prices and consequently the devaluing of money.
https://www.economist.com/news/economics-brief/21727050-policymakers-have-spent-half-century-search-natural-rate-unemployment
I think that your portrayal of the FED may not be as perfect as it could be. The FED has a mandate of maximizing employment not neccesarily eliminating it completely. This is especially important because it also has its other mandate of price stability must also be considered in its actions.
ReplyDeleteI agree with Greg. The FED is not even close to perfect and their job is not an easy one. They seem to be doing the best they can to try and increase the employment and lower the unemployment.
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