Want to know what Federal Reserve policy makers are thinking at any given time? Take a look at what the research staff is doing.
Back in the early 1990s, the staff was busy trying to explain the inexplicable weakness in M2, the Fed’s broad monetary aggregate. Nowadays its efforts are focused onunemployment.
Fed chief Ben Bernanke wants to understand why theunemployment rate has fallen so much in the face of weak economic growth, defying past relationships between the two measures. His quest is pretty much confined to econometric models.
The hawks on the policy committee are more interested in the nature of today’s 8.1 percent unemployment: whether it’s cyclical, a result of a deep recession and tepid recovery, or structural, which implies impediments to suitable match-making between employers and job seekers. For this group, the Bureau of Labor Statistics’ monthly job openings and labor turnover survey, or JOLTS, offers some real-world clues.
Job openings are one component of something called theBeveridge Curve, which describes the relationship between vacancies and unemployment. In an expanding economy, theunemployment rate is low and the vacancy rate is high as job openings go unfilled. The opposite is true during recessions. The Beveridge Curve, in other words, is downward sloping.