Should the Fed try to depress long-term yields further?

I’ve been sharing with readers my recent research with Cynthia Wu, in which we found that the Fed could likely lower long-term interest rates further by buying more long-term securities, even though the short-term rate is essentially zero and even though the newly created reserves would simply sit idle in banks’ accounts with the Fed. Here I’d like to take up the question of whether such a policy would be desirable.

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Snapshots of the Employment Situation, August 2010

I thought I’d add a few observations on the latest employment report (other reports here: [NYT], [WSJ RTE/Izzo] [CR], [Economist’s View]). First, by an alternate measure, employment is improving more rapidly than the standard nonfarm employment (NFP) measure. Second, the alternate measure increased faster than nonfarm payroll employment over the period of temporary Census hiring. Third, aggregate hours worked in the private sector continues to rise faster than private sector employment. Fourth, the NFP growth consistent with zero GDP growth is lower in the last decade, versus previous decades, even while the elasticity of NFP growth with respect to GDP growth has risen.

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