Kohn - a bit of additional price inflation and a bit of additional unemployment

Federal Reserve Vice-Chair Kohn is surprised by the persistent jump in the price of oil and suggests a Taylor rule trade off between employment and inflation. This includes both higher inflation and higher unemployment in an attempt to adjust wages and prices. Kohn seems to have asked himself what to do squeezed between a rock and a hard place. Answer: Find the most comfortable position possible to wait out the wild ride ahead.

"Since real wages need to fall and both prices and wages adjust slowly, the efficient adjustment of relative prices will tend to include a bit of additional price inflation and a bit of additional unemployment for a time, leading to increases in real wages that are temporarily below the trend established by productivity gains."

We need new ideas and new people at the helm of the Federal Reserve!


source: Lessons for Central Bankers from a Phillips Curve Framework
Vice Chairman Donald L. Kohn
At the Federal Reserve Bank of Boston's 52nd Annual Economic Conference, Chatham, Massachusetts
June 11, 2008
http://www.federalreserve.gov/newsevents/speech/Kohn20080611a.htm