The Jobs Speech That Matters This Week

For all the attention played to the president’s recent jobs speech, and even to his deficit plan today, by far the most important economic news of the week is going to come out of the September meeting of the Federal Reserve Open Market Committee. It’s set to be a special two-day affair in order to give members the time necessary to familiarize themselves with the options available to create additional monetary stimulus.

Most people see that as a sign that Chairman Bernanke has basically decided that he favors additional stimulus and needs a long meeting in order to whip votes and get everyone comfortable with his ideas. And certainly over the past couple of months, I’ve heard more frequently from professional staff that I’m underrating the basic lack of agreement around methods of delivering an economic boost rather than the desirability of doing so. Of the ideas under consideration, the one you ought to be rooting for is Chicago Fed President Charles Evans’ call to explicitly state that the Fed will tolerate a bit of extra inflation until unemployment drops several percentage points. My view (which I should add is by no means widespread among economists) is that such a statement would, on its own, increase real output. But even if it doesn’t, it’s a necessary first step to getting a boost.