Fed Officials Expect Unemployment-Interest Rate Tie to be Temporary

Wednesday, 09 Jan 2013 07:58 AM

By Dan Weil

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The Federal Reserve's decision to link interest rate changes to specific levels of unemployment and inflation probably won’t be a permanent one, central bank insiders tell The Wall Street Journal.

Last month the Fed said it plans to keep the federal funds rate near zero until the jobless rate, now 7.8 percent, drops to 6.5 percent, as long as inflation expectations remain around 2 percent.

Those levels are "mostly tailored to the specific situation we are in," St. Louis Fed President James Bullard told The Journal.

Editor's Note: The Final Turning Predicted for America. See Proof.

But Philadelphia Fed President Charles Plosser said linking rates to economic data beats linking them to dates on the calendar. It’s a "step in the right direction," he said, according to The Journal.

Prior to its policy meeting last month, the Fed said it planned to keep rates at historic lows until at least the middle of 2015.

Bullard and Plosser spoke at the annual meeting of the American Economic Association last weekend, where economists discussed the difficulty of crafting monetary policy during a crisis.

One interesting question is why the Fed’s inflation hawks go along with Fed Chairman Ben Bernanke’s radical easing policies.

It’s probably not because the hawks have suddenly turned into doves or that they feel a loyalty to Bernanke, John Silvia, chief economist at Wells Fargo, tells Bloomberg Businessweek.

Rather, “they just haven’t seen the improvement that they would have expected. The economy just seems to languish,” he says.

Editor's Note: The Final Turning Predicted for America. See Proof.

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