Slides from Janet Yellen: The Economic Situation: June 6, 2012
From http://federalreserve.gov/newsevents/speech/yellen20120606a.htm:
According to the numbers that Janet Yellen is looking at, the unemployment rate and the ease of filling jobs are halfway back to normal from their nadir levels of late 2009, but the difficulty of finding jobs has moved only a quarter of the way back towards normal levels. Simple extrapolation would then suggest that the new normal for the economy will be a situation in which jobs are not as difficult to find as they were in late 2009, but only halfway back to what the old normal was. That is an index of the hysteresis shadow that the downturn will cast on the economy for the foreseeable future.
According to Janet Yellen, optimal control considerations under certainty equivalence call for maintaining the federal funds rate added zero nominal lower bound until late 2015. But the balance of risks--the fiscal cliff, the euro crisis--strongly militates for further policy accommodation.
Listening to Janet raises the obvious question: Why isn't the Fed doing more right now? Why isn't it announcing that unless the situation improves faster than it currently expects policy accommodation will be maintained until late 2015? Why isn't it engaging in more quantitative easing now, as insurance against the many downside risks, which are not balanced by any upset possibilities that I can see?
It is a mystery...
