David Kirkpatrick

June 1, 2010

The recession and the unemployment benchmark

The question is did the recession push the unemployment benchmark to around seven percent, and if so will the Fed do damage to an already fragile economy by sticking with the previous benchmark of around five percent.

Certainly food for economic thought.

From the link:

Federal Reserve policy makers say full employment means a long-term jobless rate between 5 percent and 5.3 percent. Some of the most influential economists say they’re wrong.

Dean Maki at Barclays Capital, 2006 Nobel Prize-winner Edmund Phelps and Bank of America-Merrill Lynch’s Ethan Harris estimate the worst financial crisis since the Great Depression has pushed the so-called natural rate of unemployment to between 6.3 percent and 7.5 percent. Unless the Fed accepts that more Americans will be permanently out of work, the central bank may spur inflation by waiting too long to raise its benchmark rate from a record low, said Maki, Barclays’ chief U.S. economist and the most accurate forecaster in a December 2009 Bloomberg News survey.

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