The Fed Should Help Out the Recovery by Letting Inflation Rise a Bit

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We had some pretty decent jobs numbers today: 227,000 new jobs in February and an upward revision for January to 284,000 new jobs. Hooray! And with that out of the way, I’m going to profoundly abuse the principles of fair use and republish this post of Karl Smith’s in its entirety:

I had considered oil prices to be the primary threat to an accelerating recovery. I do think the fundamentals are ripe for an accelerating job creation rate. 300K+ a month is not fundamentally unrealistic at all.

I now believe, however, a panic-y federal reserve and an over-obsession with keeping inflation expectations moored is the biggest threat.

For now I think it should be the mission of every Journalist to harp on Fed Officials as to why they are willing to tolerate half a decade of unemployment above 5% and the devastation and loss of skills associated with that but they are not willing to tolerate Core-PCE rising above 2%?

I still think oil prices are a potential problem area, as is Europe — though the EU seems to have successfully kicked the can down the road for a while and is probably not an immediate threat. And in the Fed’s defense, they’ve made it clear that interest rates are going to stay super-low for quite a while.

Still, a wee bit of higher inflation would be pretty welcome. Just as insurance, mind you. Let’s do everything we can to avoid an economic relapse, OK?

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