Goldman: Evans Rule in Effect

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:

Goldman Estimate: QE3 could be $1.2 to $2.0 Trillion (Calculated Risk)

 

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