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Fed Declares 2015 Unemployment Target of 6.5%

The NY Times published an article yesterday (link here) which summarized a recent announcement: the Federal Reserve is adopting a new primary objective. For the past three years, the Fed has focused on maintaining a low (2%) inflation rate.  Bernanke stated that inflation is stable and not expected to rise in the medium-term future.  Consequently the Fed intends to refocus efforts on reducing the unemployment rate (7.7% in November) to 6.5% by 2015 by “expand[ing] its holdings of mortgage-backed securities by about $40 billion a month (2).”  Bernanke did state, however, that this campaign was conditional on inflation staying below 2.5% in the medium-term forcasted future.  Bernanke further clarified that while the stimulus campaign is intended to improve unemployment levels, the Fed is not sitting on a magic cure-all for the country’s economic travails.  Their power to improve economic performance is limited, but Bernanke feels that this discretionary policy (rather than inflation targeting-oriented policy) will be most effective in fully utilizing what power the Fed does have.