Low inflation and full employment have both been mandates of the Federal Reserve since 1977. While the central bank has typically felt more comfortable establishing policies that address the first concern, the stubbornly weak economy has forced officials to put more focus on the second. “If 5% inflation would have our hair on fire, so should 9% unemployment,” said Charlie Evans, president of Chicago’s Federal Reserve Bank, in 2011.
The Fed announced last December that it will keep interest rates close to zero until unemployment falls below 6.5 percent — or until inflation is forecast to top 2.5 percent — and since then the pressure has been on officials to show that its monetary policies are working. At a recent press conference, Chairman Ben Bernanke was pressed expound on the metrics that would be used to measure the labor improvements.
So far, one thing is clear; gains in the labor market have been uneven, a fact that Federal Reserve governor Sarah Bloom Raskin acknowledged Friday. But she remains convinced that the central bank can alleviate the challenges faced by low-income communities, many of whom are still struggling to find work, with increased bank supervision and regulation.
As Raskin said in remarks prepared before the National Community Reinvestment Coalition annual conference, covered by The Wall Street Journal, numerous economic indicators show that the Fed’s easy-money policies “are working to strengthen the recovery and that the labor market is improving.” She added that the Federal Reserve’s policy makers expect to keep interest rates low “for a considerable time” to further support this upswing…