In standard form, Mark Thoma's heart goes out to the unemployed, as mine does. However, Mark is much more certain than I am that the Fed can actually help these people out. Here is what Mark would have asked Ben about, if he could:
The main question I wanted to hear Bernanke answer is, given that inflation is expected to remain low, why isn't the Fed doing more to help with the employment problem? Why not a third round of quantitative easing?And:
In retrospect, more aggressive action by the Fed was warranted in every instance. Perhaps this time is different — I sure hope so — but the recovery has been far too slow to be tolerable. Green shoots require more than hope, they require the nourishment, and with fiscal policy out of the picture it’s up to the Fed to provide it.Well, the answer to the question: "Why not a third round of quantitative easing?" should be: "Because it does not do anything." (see here). In retrospect, the Fed could not have done any more than it did, even if you think that sticky wages and prices matter in a big way. Mark may think that the level of employment is intolerable, but the Fed has to tolerate it in the same way I have to tolerate the soggy weather outside.
Now, to take back what I said earlier, DeLong actually discusses something different (though the theme is the same). This is tag team. Thoma does labor market, DeLong does inflation. Brad's problem with Ben is pretty straightforward.
It thus looks like 1 percent is the new 2 percent: with current Federal Reserve policy, we are looking forward to a likely 1 percent core inflation rate for at least another year, and more likely three.Bernanke has certainly made it clear that, in his view, the Fed has a 2% inflation rate target. It is also clear that he wants to focus on core measures of inflation. We'll take Brad's word for it that PCE deflator inflation, excluding food and energy, is running at about 1%, year-over-year. Clearly that's too low relative to the target, so shouldn't the Fed be doing more to correct that problem?
1. Accommodative monetary policy causes inflation, but with a lag. I think Brad's inflation forecast is on the low side, as maybe Ben does as well. The policy rate has been at essentially zero since fall 2008. Sooner or later (and maybe Ben is thinking sooner) we're going to see the higher inflation in core measures.
2. Maybe Ben is more worried about headline inflation (as I think he should be) than he lets on.
3. Maybe in his press conference Ben did not want to spend his time explaining why the Fed spends its time focusing on core inflation. What every consumer sees is headline inflation, and they are much more aware of the food and energy component than the rest of it.
4. As with my comments on Thoma, there is really no current action that the Fed can take to increase the inflation rate. More quantitative easing won't do anything, so the Fed is stuck with saying things about extended periods with zero nominal interest rates in order to have some influence through anticipated future inflation on inflation today.