These challenges led to legitimate questions among forecasters and the public about just what the FOMC meant by “maximum employment” and “stable prices.” The FOMC could have chosen to adopt an “inflation-targeting framework,” in which it would have specified an objective solely for inflation, without any explicit reference to employment.
That bias, however, diminished rather dramatically over the past ten years, arguably in large measure because of the acceleration in productivity growth in the United States. The associated elevation of expected real rates of return relative to those available elsewhere increased investment opportunities in the United States. The correlation coefficient accordingly fell from 0.95 in 1993 to less than 0.8 by 2002.