Matthew Yglesias, Vox: The Fed’s Inflation Hawks Are Still Wrong - Vox
Philadelphia Federal Reserve Bank President Charles Plosser dissented from this week’s FOMC statement, arguing that the country needs tighter money faster than Janet Yellen is offering. Then this morning he doubled down in a statement, arguing that the Fed’s current stance is “well behind” where it should be in light of the falling unemployment rate.
It was bold of Plosser to make that statement at 8 AM knowing full well that through a quirk of the calendar, new unemployment data and new inflation data were both coming out at 8:30 AM this morning. And thanks to that quirk, we were able to find out that Plosser was wrong in record time.
First inflation. The Fed’s index of choice is the Personal Consumption Expenditures Deflator (read all about it) and today’s personal income report says it rose 1.6 percent over the past year. That’s lower than the Fed’s target, not higher, indicating that money is too tight not too loose.
Then on unemployment, this month’s jobs report said that employers added over 200,000 new positions but the labor force expanded even faster so the unemployment rate went up slightly.
Both data points in the same direction — the economy is growing, but it has room to grow faster. There are workers hungry for jobs, and price pressures remain moderate. Under the circumstances, the Fed should be pondering ways to give the economy a further boost not pondering ways to slow it down.
The economy is growing, but at a tepid rate, and no sane person could possibly think its overheating. U-6 unemployment, which includes people marginally attached to the workforce and people working part-time who want full-time jobs but can’t get them is still at 12.2%. That is a significant decline from the all-time high of 17.4% set in October 2009, but its still 0.4% higher than the pre-recession high of 11.8% set in January 1994 (the year the u-6 unemployment stat was created) and a whopping 37% higher than the pre-recession average of 8.9%. With U-6 unemployment still very high, inflation 20% below the target rate and workers only just starting to get decent raises, we are still a long way away from needing higher interest rates; fortunately it appears that Janet Yellen understands this.