Wednesday, July 14, 2010
Paul Krugman beat me to this...but here's my take:
The FOMC members are asked to give their assessment of “the rate to which each variable would be expected to converge over time under appropriate monetary policy and in the absence of further shocks”. The 2012 forecast – the time frame that would provide enough of a buffer for the 1 year to 1.5 years lag in policy – includes persistently high unemployment and anemic headline and core inflation.
My quandary: all merits of monetary policy aside, doesn’t their forecast by definition imply inappropriate monetary policy? At the very minimum, it implies inappropriate fiscal policy.