I think that the excellent Cardiff Garcia gets a rare one wrong when he decides that it is not a big deal:
FT Alphaville » The Kocherlakota Rule: This has been interpreted as a kind of doveish shift by Kocherlakota and inconsistent with his previous views — specifically that structural factors are largely to blame for the sluggish employment recovery. Maybe, though really the idea he announced today doesn’t necessarily contradict his views on structural unemployment; instead it just elides the issue altogether. If unemployment is indeed mostly structural, then it is unlikely that the economy will get to 5.5 per cent unemployment before inflation climbs to 2.25 per cent.
Remember, before, Kocherlakota was in favor of early increases in interest rates and opposed to quantitative easing because he was very confident--without evidence--that unemployment was structural, and unwilling to use policy to test that assumption. He was arguing against those of us who said that the Fed should continue to ramp up expansionary policy as long as there were no signs of an accelerating wage-price spiral.
Now he is one of us.
That is a big shift.
