Robin Harding at FT writes:
The other issue on the agenda is replacing the FOMC’s current forecast that rates will stay low until mid-2015 with a set of preconditions for the economy to reach before it considers raising rates. “I now think a threshold of 6.5 per cent for the unemployment rate and an inflation safeguard of 2.5 per cent . . . would be appropriate,” said Charles Evans, president of the Chicago Fed…..
The problem is that both of these thresholds are moving targets:
- Unemployment is based on surveys and only includes those who have actively sought a job in recent weeks. It fluctuates with the participation rate.
- Inflation is also subjective, dependent on the basket of goods measured and estimates of housing inflation that are subject to manipulation.
Targeting nominal GDP growth would be far more accurate.