In a House hearing on monetary policy last week, Federal Reserve Chair Jerome Powell made a telling confession in response to a question from Rep. Alexandria Ocasio-Cortez (D-NY). The topic was the so-called natural rate of unemployment: the idea, believed by many economists and policymakers, that there is a rate at which unemployment could get so low that it could trigger ever-rising inflation.
It’s an idea that has governed decades of monetary policymaking, often prompting the Fed to keep interest rates higher than it should — slowing down the economy in the process — out of fear of accelerating inflation.
Ocasio-Cortez didn’t waste time poking holes at it. She pointed out that the unemployment rate, now 3.7 percent, has fallen well below the Fed’s estimates of the natural rate, which it forecast at 5.4 percent in 2014 and 4.2 percent today. And yet, she noted, “inflation is no higher today than it was five years ago. Given these facts, do you think it’s possible that the Fed’s estimates of the lowest sustainable unemployment rate may have been too high?”
Powell’s response, to his credit, was as simple and direct as you’ll ever hear from a central banker: “Absolutely.” He elaborated: “I think we’ve learned that … this is something you can’t identify directly. I think we’ve learned that it’s lower than we thought, substantially lower than we thought in the past.”
More here – Vox
PS: I am surprised that there are only four things on the list. We can also throw in old chestnut that privatisation improves competition and thereby service levels go up and prices come down……anyone got a power bill lately?
Let’s leave aside all the bullshit beliefs they bring to markets.