FedSim Followup

In my second attempt at Evan Soltas' FedSim, I was able to hold off rising inflation expectations for a while, mostly by raising the Funds rate when the pace of improvement in the labor market was encouraging, rather than when the level of unemployment was satisfactory. The cost of this, of course, is that I stifled that pace, and we found ourselves with unemployment stuck between 6 and 7%, and inflation, especially core, began to pick up significantly toward the end of the experiment. These are, of course, Milton Friedman's "long and variable lags." Oh, well, back to the woodshed.

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