The Federal Reserve has a dual mandate to maintain low inflation and high employment — a job description that requires a balancing act, as these two goals can be in tension. The Fed has put its inflation target at 2 percent, while 5 percent is generally viewed as the normal unemployment rate when the economy is operating at full strength.
But as economist Chad Stone shows in U.S. News & World Report this morning, the Fed has usually hit its inflation target ever since the Great Recession while utterly failing to meet its obligation to bring down unemployment:
So the Fed has spent the last three years treating 2 percent inflation as a ceiling rather than a happy median, refusing to allow it higher even to bring down America’s sky-high unemployment rate of 8 percent. But the good news is that in late June, the Federal Reserve finally decided to extend what monetary easing it has engaged in by another $267 billion, and the institution’s hesitation to do more to help the economy could be dissapating. Whether it will be sufficient to help the economy at this point remains to be seen.