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April 2014

February 2014

Monetary Policy During the Crisis

Last Friday, the Fed released the detailed transcripts of FOMC meetings during 2008, the year they realized the gravity of the financial crisis.  It's a big job, but if you are so inclined, you can read the transcripts in their entirety here

The NY Times has done us all a service by splicing key statements by Ben Bernanke, Janet Yellen, Timothy Geithner and others, along with the key graphics that chronologically show how the Fed has responded to the crisis.  One graphic tracks the evolution of the Fed Funds target rate (shown below) during 2008, as it dropped the target from 4% to almost zero. 


Janet Yellen was one of the first to sense the potential danger.  Here is a quote from January 21, 2008, in which she supports a historically large cut in the Federal Funds target rate:

I strongly support your proposal for a 75 basis point funds rate cut today... The outlook has deteriorated, not only since December but since our conference call.  The downside risks have clearly increased.  I think the risk of a severe recession and credit crisis is unacceptably high...

In hindsight, it is clear that Yellen was right on.


Unemployment Rate Drops to 6.6%

Today's jobs report brought mixed news.  On the one hand, 113,000 new jobs were added to the economy in January.  On the other hand, the unemployment rate continued its decline, falling to 6.6 percent.  For perspective, note that just one year ago the unemployment rate was 7.9 percent.


One other piece of good news - the labor force participation rate rose slightly to 63 percent.  Perhaps this rate has stopped its decline.


In sum, the labor force grew while the unemployment rate declined.  We need more months like that.