Another day, another clue in the quest to understand why the Fed isn't trying harder to reduce the rate of unemployment:
John Williams, president of the Federal Reserve Bank of San Francisco, said Thursday that the nonaccelerating inflation rate of unemployment "“ the lowest level of joblessness that can be reached without leading to inflation "“ may have climbed as high as 6.5 percent, compared to 5 percent before the recession.
First time hearing about the nonaccelerating inflation rate of unemployment, or Nairu? No worries. It's an important concept, but also pretty obscure. Basically, the idea is that some unemployment is good, or at least unavoidable. People change jobs. Industries disappear and workers need to be retrained. And a pool of unemployed workers limits the competitive pressure to raise wages.
In technical terms, many economists "“ including the ones who run the Fed "“ believe that pushing unemployment below a certain level will cause wages and prices to rise. They call that level the natural rate of unemployment. And Mr. Williams thinks recent disruptions, which have left some workers ill equipped to find new jobs, have raised that rate as much as 1.5 percentage points.
(In a February research note, Mr. Williams and a co-author calculated that the rate might have climbed as high as 6.7 percent.)
First time hearing about John Williams? Well he, too, is important, if a bit obscure. Mr. Williams is one of the 10 people with votes on the Federal Open Market Committee, which sets Fed policy. He generally is in the activist faction that supports efforts to bolster growth. Indeed, just a few months ago, Mr. Williams seemed to be in favor of doing more.
But Mr. Williams has sounded a lot less enthusiastic in recent speeches. So has the rest of the activist wing. And that is a little easier to understand if the Fed has concluded that it shouldn't try to push the rate of unemployment below 6.5 percent.
E-mailPrintRecommendShare CloseTumblrDiggLinkedinRedditPermalink Federal Reserve, Federal Reserve Bank of San Francisco, inflation, Unemployment Related PostsFrom EconomixAre We About to Repeat the Mistakes of 1937?Inflation, in PerspectiveInflation? Not in WagesIs More Bond-Buying the Answer?Who Captured the Fed? Previous Post China and the Integrity of Accounting Next Post Lowered Expectations on the Jobs Report// jQuery(document).ready(function($) { NYTD.commentsInstance = new EmbeddedComments($, 'NYTD.commentsInstance'); NYTD.commentsInstance.init({configName: 'default'}); }); // /**/// if ((typeof adxpos_SponLink2 == "undefined") || (typeof adxads[adxpos_SponLink2] == "undefined")) { if($("SponLink2")) { $("SponLink2").hide(); } } // /**/// if ((typeof adxpos_Position1 == "undefined") || (typeof adxads[adxpos_Position1] == "undefined")) { if($("Position1")) { $("Position1").hide(); } } //Search This Blog Search Previous Post China and the Integrity of Accounting Next Post Lowered Expectations on the Jobs ReportFollow This BlogTwitterRSS /**/// if ((typeof adxpos_XXL == "undefined") || (typeof adxads[adxpos_XXL] == "undefined")) { if($("XXL")) { $("XXL").hide(); } } // In order to view this feature, you must download the latest version of flash player here.var so = new SWFObject("http://graphics8.nytimes.com/packages/flash/business/20090302-econ-indicators-graphic/econIndicators.swf","nytSWF", 334,290,9,"#FFFFFF"); so.addParam("allowScriptAccess","always"); so.addParam("allowFullScreen","true"); so.addParam("BASE","http://graphics8.nytimes.com/packages/flash/business/20090302-econ-indicators-graphic/"); so.addVariable("allowCaching",true); so.write("embed70");#embed70{visibility:visible !important;}h2.multiHeadline {font-size:156% !important;padding:0px 0px 7px !important;margin:6px 6px 11px 3px !important;border-bottom:1px solid #CCCCCC !important;} /**/// if ((typeof adxpos_MiddleRight == "undefined") || (typeof adxads[adxpos_MiddleRight] == "undefined")) { if($("MiddleRight")) { $("MiddleRight").hide(); } } //EconomixThe latest from Times reporters and editors. /**/// if ((typeof adxpos_Spon3 == "undefined") || (typeof adxads[adxpos_Spon3] == "undefined")) { if($("Spon3")) { $("Spon3").hide(); } } // Loading Twitter messages...// var twitterReaderVar={widget_id:"4",sidebar_id:"sidebar-2",widget_name:"nyt-twitter",avatar:"show"};if(typeof twitterReader=="undefined"){twitterReader=new Array()}twitterReader.push(twitterReaderVar); //Featured Structural Unemployment and Good JobsInadequate demand — rather than mismatches between job requirements and skills — is the major reason for the elevated unemployment rate, an economist writes. But even as the jobless rate declines, skill requirements for good jobs will continue to rise.
Mitt Romney and Paul Ryan’s BudgetMr. Romney seems to be embracing proposals by House Republicans that would push Medicare costs onto consumers and bolster health care companies and big banks, an economist writes.
The Safety Net and LayoffsExpansion of the amount and duration of safety-net measures for the unemployed has increased the number of people not working, an economist writes.
Taxes and EmploymentRepublicans can talk all they want about how tax cuts would create jobs, but there’s no evidence to support that, an economist writes.
Not Wanting JobsToo many Americans — and their leaders — seem relatively unconcerned with high levels of unemployment, an economist writes.
Featured ContributorsFloyd Norris, the chief financial correspondent of The New York Times and The International Herald Tribune, covers the world of finance and economics.
Posts | Profile | E-mailCatherine Rampell is an economics reporter for The New York Times.
Posts | Profile | E-mailBinyamin Appelbaum covers business and economic topics for the Washington bureau of The New York Times.
Posts | Profile |E-Mail | TwitterAnnie Lowrey covers economic policy for the Washington bureau of The New York Times.
Posts | Profile |E-Mail | TwitterMotoko Rich is an economics reporter for The New York Times.
Posts | Read Full Article »