Sunday, March 14, 2010

Dean Baker > Fed should act to promote full employment

We need a scheme for full employment
Dean Baker
Monday 22 February 2010 21.00 GMT

"Is the Fed breaking the law? That is a question that members of Congress should be asking. The Humphrey Hawkins Full Employment Act, which governs the Fed's operation, requires the Fed to pursue price stability and full employment, which is defined as 4% unemployment. It would be hard to maintain that current policy is consistent with these goals."

"At this point the Fed is explicitly discussing its plans for an exit strategy, moving away from its policy of quantitative easing. This means we should anticipate a general upward movement in interest rates in coming months, although the speed of this movement is not clear."

"This is troubling because the economy is expected to remain very weak by almost everyone, including the Fed itself. The Congressional Budget Office projects that the unemployment rate will average near 10% in 2010, 9% in 2009, and 8% in 2012. Unemployment is not projected to fall to 5% until 2015. If the Fed is retreating from its quantitative easing and allowing interest rates to rise, its policy will be doing little to push down the unemployment rate more quickly..."

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