I just got back from a panel discussion on US Macroeconomic Policy. Charles Evans, President of the Federal Reserve Bank of Chicago, was one of the panelists and he mentioned in his talk his own personal targets for inflation and unemployment (two of the Fed’s main outcome variables). Specifically, Evans defined “price stability” as inflation running at 2%, and “full employment” as “around 5% unemployment”. Does anyone else think it’s kind of funny that we live in a world where prices increasing at 2% a year can be defined as “price stability”, and 5% unemployment can be defined as full employment? It just struck me as a wee bit 1984 (especially fun is the way that “structural changes” are often argued to change the “natural rate of unemployment” when variables don’t move the way they should, but the whole thing really).