A few lynx

June 18th, 2018 at 4:26 pm

Over at WaPo, I provide the anatomy of a revealing moment from Federal Reserve Chair Jay Powell’s press conference last week. A tough question landed him in the cul-de-sac one finds oneself in when one tries to defend a specific unemployment rate as the “natural rate.” In fact, the question asked of Powell was, “how is the Fed going to get from 3.5% to 4.5% unemployment?” To which I add: “and why would they want to?!”

In terms of estimating the “natural rate,” I’m still touting this figure from Obama’s CEA of their estimate of the rate with exploding confidence intervals (from my paper on the importance of strong labor demand for the Hamilton Project). In the context of my WaPo piece, the relevant takeaway from the figure is: “I guarantee you that neither the Fed’s very smart staff nor any other economist can reliably tell you whether the “natural” rate is 3.5 or 4.5 percent.”

I’m writing something about the increasing need for a national service program in the age of Trump. So, I was interested to see this compelling piece arguing for a new CCC from my old Obama admin colleague Robert Gordon.

Part of the hypothesis here is that we have to do something to learn more about our commonalities across class, race, politics, nationality, etc. I try to be careful not to stray from my econo-lane, but I can’t just dither along about the natural rate and 25 basis point rate hikes when the policy of my country is to separate immigrant children from their parents. Obviously, scribbling isn’t enough; one must do more. But the least any of us with a pen and a platform can do is to shout about this horrific injustice.

 

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2 comments in reply to "A few lynx"

  1. Kevin Rica says:

    Good WaPo piece!

    But if the Fed tightens without evidence of high and accelerating inflation (to core PCE), it will show that they are either deliberately targeting unemployment or even wage growth instead of inflation. If they are, that will explain income inequality.


    • Bob Anderson says:

      Maybe, but debt growth based on private borrowing is bad. Since 2002, that is all that’s been going on. Core pce is not designed to be high even if it is high.


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