Here is a good post from Paul Krugman:
In past releases, the Fed has been clear that the long-run unemployment projection represents Fed views on the NAIRU, the unemployment rate consistent with stable inflation, and that the long-run inflation projection should be viewed as a target. Also, the Fed generally looks at core inflation rather than the headline number.
With that in mind, here’s what the Fed expects: unemployment far above normal, core inflation well below target, for years to come.
I’d quarrel with those projections, a bit: I have no idea why Fed presidents expect core inflation to rise over the next two years. Historically, high unemployment has been associated with falling, not rising inflation. In fact, my bet is that we will be near or into deflation by 2012.
But even given the Fed’s own projections, it’s not doing its job, it’s missing its targets. Yet it apparently sees no need to act.
Bonus question: Estimate (to the nearest 100) the number of times I have complained (since October 2008) that the Fed is not targeting the forecast.
HT: Niklas Blanchard
Update: Get your NGDP targeting T-shirts here.
HT: William Luther.