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politics, Uncategorized

We have an employment problem, not an inflation problem (part 2)

Artist: Rex May “Baloo”

Last week I wrote on Paul Ryan’s unusual take on monetary policy.  Again, the Romney/Ryan ticket (in particular Ryan) wants to do away with the Fed’s dual mandate and have it focus primarily on stabilizing prices.  For them the Fed should have no stimulative role as any quantitative easing would create unsustainable levels of inflation and weaken the dollar.  So, according to Romney/Ryan, the Fed should ignore the unemployment problem and focus primarily on inflation.

Again, here is the core consumer price index

HHInflation.png

I’m not sure exactly what “threat” of inflation Ryan would be referring to, but 2% is rather sustainable.

But what about the first two rounds of quantitative easing.  Surely QE1 and QE2 must have increased the rate of inflation, right?  Well, no.

…And it looks like previous rounds of quantitative easing didn’t hurt us either.

Let’s look at the other side of the dual mandate – the Fed’s focus on employment

Here is the unemployment rate (both the official and real)

Unemployment is a far great problem than inflation.  Official unemployment has gone down a point over the past two years but, according to other measures, will most likely stay around 8% or 7% for another couple of years without decisive government action.  Now, look at the real unemployment rate (measured by those who used to be in the workplace but have been laid off and quit looking for work).  That does not look like it’s going down but, rather, stabilizing at 12%

I’m not sure how one can look at these two charts (inflation and unemployment) and then conclude that the Fed should focus on price stability and not jobs.

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