For American Lyceum event wiþ Garett Jones, John Taylor, Tim Kane, & Brad DeLong :: recorded 2023-04-27 Th
You have been prescient and consistently accurate questioning great influencers screaming the Fed was behind the curve. Getting to full employment from 14.7% in April 2020 is an extraordinary achievement and once again you are so appropriately asking why aren’t our senators applauding. This is after all about people and putting people first.
Bingo! on each point you've made, especially the one about the "optionality" in the Taylor Rule. (If I may say so, at my own expense, you have underpriced your blog!). Another thing, if I may, about the Taylor Rule. Unemployment can go up, say from 3.5% to 4.5%, in three ways. 1) Layoffs 2) Improved participation rate 3) Mix of (1) and (2). If you set aside the inflation segment of the Rule for the moment, it would recommend only one course of action for all. But the underlying economy is different in each scenario. An economy where unemployment is up due to mass layoffs is different from one in which unemployment is up because people are drawn into the labor force when jobs become easier to find. They are counted as unemployed during search.
Agreed, but the TIPS market isn't dispositive. Core inflation (with rents properly adjusted and events 6 months or more in the past ignored) might get stuck at around 4%. But I'm betting it will continue its trend downwards. My reply to the more hawkish Larry Summers: https://twitter.com/MeasureMeasure/status/1664717135229370368?s=20
"Had the Fed moved earlier, we would not have had as rapid and complete a recovery from the plague depression." I think September 2021 was the time to move. That what the blip in TIPS says. But earlier when the Fed was saying "temporary" it should have added "because we will make sure it is temporary, no more than needed to maximize employment." And the Administration should never have said anything except that it has full confidence that the fed can achieve its targets.