Unemployment Can Get Even Lower
(Bloomberg Opinion) -- I have been arguing for some time that the Federal Reserve should run the U.S. economy “hot” by keeping interest rates low even after unemployment falls below its so-called natural rate. Not everyone agrees with me, to put it mildly. One of the more thoughtful critiques came this week from Raphael Bostic, president of the Atlanta Fed.
In a speech to a business group in Louisiana, Bostic defended the Fed’s policy of raising rates to help prevent a recession. As evidence, he presented a version of the chart below, which he called “a picture worth thinking about.”
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Karl W. Smith is a senior fellow at the Niskanen Center and founder of the blog Modeled Behavior.
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