'Easy money' helped to hold down unemployment, researchers find

Without the Fed and its low interest rates, the jobless rate would have been higher these past few years — pretty much all economists agree on that.

But how much worse would things have been?

A paper written by two economists for the Federal Reserve Bank of Atlanta takes a stab at answering that question.

Leaving aside the fuzzy math of economics, the researchers conclude the four years of easy money lowered the unemployment rate by 0.13 percentage points.

The national rate in December 2013 was 6.7 percent. So, if the Fed had not been so aggressive, the rate would have been 0.13 points higher: 6.83 percent.

But if the Fed had done nothing at all? That would have meant an unemployment rate a full 1 percentage point higher: 7.7 percent in December.

It is the mission of the nation's central bank to monitor and — when it can — steer the giant U.S. economy.

The law that created the Federal Reserve a century ago set out a series of purposes, and sometimes some of the goals conflict. For instance, the Fed is supposed to keep prices stable and also to promote as much employment as possible.

There is often worry that boosting the job market means lower interest rates and other economic stimulants — just the kinds of things that can spur price inflation.

Since 2008, the nation's central bank has mostly been worried about jobs.

The Fed has kept short-term rates near zero; indeed, by some calculations conclude they are functionally negative. In 2009, the Fed grew more aggressive — using "unconventional monetary policy" — in an urgent attempt to get the economy moving.

There was, at the same time, a stimulus package from the government, although some economists said it wasn't big enough to fully meet the crisis.

In any event, the Fed was as aggressive as it has been historically. Low rates and purchases of bonds made borrowing money extremely cheap.

Some Fed critics have worried since 2009 that the easy-money policy from Fed would set off a devastating wave of inflation. So far, that hasn't happened, the Fed researchers note.

"Interestingly, the accommodative monetary policy during this period has not boosted real activities at the cost of high inflation," they write.

Not everyone agrees with that conclusion. Writing in a recent email newsletter, Wells Fargo's chief economist, John Silvia, said he found the recent increases in prices a sign that inflation was becoming an issue for the Fed — or should be.

The Consumer Price Index was up 0.4 percentage points in May, while the core CPI _ that is, prices not including the more volatile numbers for energy and food — rose 0.3 percent. The overall CPI is now up 2.1 percent year-to-year, while the core is up 2.0 percent.

Silvia called the increases "fairly broad-based."
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