Does unemployment not matter to the Fed?

TBA reads more about unemployment and monetary policy than we report on it, but this NYT analysis is worth linking.

One group of Fed officials and watchers worries constantly about the prospect of rising inflation, no matter what the economy is doing. Some of them are haunted by the inflation of the 1970s and worry it may return at any time. Others spend much of their time with bank executives or big investors, who generally have more to lose from high inflation than from high unemployment.

There is no equivalent group — at least not one as influential — that obsesses over unemployment. Instead, the other side of the debate tends to be dominated by moderates, like Ben Bernanke, the Fed chairman, and Mr. Meyer, who sometimes worry about inflation and sometimes about unemployment.

The result is a bias that can distort the Fed’s decision-making. Just look at the last 18 months. Again and again, the inflation worriers, who are known as hawks, warned of an overheated economy. In one speech, a regional Fed president even raised the specter of Weimar Germany.

These warnings helped bring an end early last year to the Fed’s attempts to reduce long-term interest rates — even though the Fed’s own economic models said that it should be doing much more. We now know, of course, that the models were right and the hawks were wrong. Recoveries from financial crises are usually slow and uneven. Yet the hawks show no sign of grappling with their failed predictions.

A small increase in inflation would be no great penalty to pay for getting millions of Americans back to work. But the Fed simply does not care about unemployment ... unless indeed the "hawks" see unemployment as the GOP's best shot at retaking the White House in 2012.