2013-05-01 — nytimes.com
The Federal Reserve is making modest progress in its push to reduce the unemployment rate. But that is not the jobs goal Congress actually established for the Fed. The central bank is supposed to be maximizing employment. And on that front, it is not making progress.
there are several reasons officials remain reluctant to do more. The benefits of additional asset purchases appear modest, at best. The consequences of buying more bonds are uncertain. And officials are frustrated that their monetary policy is being forced to play a role that most economists and Fed officials say could be more easily and effectively performed by fiscal policy.
Another reason the Fed is not embracing new measures is that it already has tied the duration of low interest rates to the unemployment rate. The Fed said in December that it intended to hold interest rates near zero at least as long as the unemployment rate remained above 6.5 percent, provided that inflation remained under control. The theory is that the economy will get as much stimulus as it needs.
But recent research by two Fed economists suggests the current plan will not work if the Fed begins to reduce its efforts when unemployment falls below 6.5 percent, because that is not low enough to draw people into the job market.
The economists, Christopher J. Erceg and Andrew T. Levin, both on leave at the International Monetary Fund, calculated that the number of people who wanted jobs but were not looking now exceeded the number actively searching.
"It's safe to ignore the participation rate during normal times," Mr. Levin said earlier this month at a conference held by the Federal Reserve Bank of Boston, where the paper was presented. "Our message is that it may not be safe to ignore it now."
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