Of course, if anything, this possibility argues for more-aggressive policies to reduce unemployment sooner.12 Effective policy responses The policy issues presented by today’s labor market problems are challenging, to say the least.
There is need, and ample room, for additional measures to increase aggregate demand in the near to medium term, particularly in light of the limited upside risks to inflation over the medium term. Unlike in the aftermath of the steep recessions of the mid-1970s and early 1980s, demand growth has not become sufficiently self-sustaining to produce the strong recovery that followed those earlier episodes.