Bill at Calculated Risk picked up on some commentary from Goldman’s Jan Hatzius regarding the Fed’s new do-or-die approach to employment. It appears as though the Evans Rule (which targets unemployment toward certain levels given a specific ceiling on inflation) is now in effect, at least implicitly…
• … We now view the Fed as following a looser version of the “threshold rule” championed by Chicago Fed President Charles Evans.
• What are the thresholds? We read the committee as signaling that the federal funds rate will not rise until the unemployment rate has fallen to the 6½%-7% range. The corresponding threshold for the end of QE3 may be in the 7%-7½% range.
•These implicit commitments are undoubtedly subject to an inflation ceiling … may be a year-on-year core PCE reading of 2½%-2¾%.
For more on what the size of QE3 could ultimately be, head over: