Why Fed Has Failed to Lower U.S. Unemployment by Elaine360

la-2013-p1-normalThe Federal Reserve has a dual mandate to promote price stability and ensure full employment. It has yet to achieve either. It has set an annual inflation target of 2 percent, yet the consumer price index rose only 0.1 percent in May after falling 0.4 percent in April, and it was up only 1.4 percent in the 12 months ending in May.

The Fed’s preferred metric, the personal consumption expenditures price index excluding food and energy, rose just 1.1 percent in June from a year earlier.

The central bank hasn’t defined what it would consider full employment, even when it pledged to continue buying $85 billion in securities each month “until the outlook for the labor market has improved substantially.”

After record-low interest rates failed to induce banks to lend and creditworthy borrowers to borrow, the Fed and other major central banks embarked on a novel, and by their own admission, uncertain, course of stimulus known as quantitative easing, involving huge purchases of government and other securities. It had been tried by the Bank of Japan for years without notable success, but Western central banks have become increasingly desperate as they cast around for ways to create jobs.

read more from Gary Shilling of Bloomberg here

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