6.5% unemployment isn’t close enough to full employment for me, but this new approach of making the policy stance conditional on a specific unemployment rate is a huge improvement:
The Federal Reserve took a genuinely unexpected step Wednesday afternoon when it announced it would significantly enhance its current monetary easing program. The Fed, for the first time, committed to keeping monetary policy loose until the economy crosses precise thresholds — specifically, an unemployment rate below 6.5 percent or a inflation above 2.5 percent.
It also upped its monthly asset purchases to from $40 to $45 billion.
(Thanks: Brian Beutler)