Fed Dual-Mandate Policy Dilemma Simulator

Regime Scenarios & Presets

Macroeconomic Structural Inputs

Core PCE Inflation (π) 2.80%

Unemployment Rate (u) 4.30%

Neutral Real Rate (r*) 1.25%

Natural Rate NAIRU (u*) 4.10%

Policy Inertia Smoothing (ρ) 0.75

Supply Shock Premium (z) +0.40%

The Structural Dilemma

As examined in The Economist, Fed chair transitions cannot eliminate the mathematical constraint: when core inflation remains stuck above 2.0% while unemployment softens, cutting rates to support labor risks reigniting inflation expectations.

Prescribed Taylor Rate

4.55%

Taylor (1993) reaction target

Inertial Policy Path (Next Step)

4.72%

Smoothed gradualism rate

Real Fed Funds Stance

+1.92%

Restrictive Stance

Mandate Tension Balance

Elevated

Inflation deviation dominates

Dynamic Policy Rate Trajectory (8-Quarter Horizon)

Taylor Target

Inertial Path

Supply Shock Path

Neutral Baseline (r* + 2%)

Dual-Mandate Phillips Trade-off Frontier

Current Operating Point

Dual Mandate Target (2.0%, NAIRU)

Monetary Reaction Breakdown

Taylor Rule: i = r* + π + 0.5(π - π*) - 1.0(u - u*)

Fed Leadership Regime Comparison

Policy rates constrained by sticky core services inflation; supply shock leaves minimal room for aggressive rate cuts without reigniting price pressures.

"The Fed faces the exact same structural friction: rhetorical regime changes cannot bypass the math of sticky services inflation and labor trade-offs."