Inflation is below target. Increasing output and decreasing or stagnant inflation is an indication that inflation expectations are becoming unanchored. That’s bad. Inflation should not spend too long, too far from its implicit target of 2%.
Structural unemployment is high right now. Instead of just dumbly extending UI benefits and scratching our heads on why unemployment among the young is increasing after three subsequent increases in the real minimum wage, we should do something about it.
Politically — I’m only guessing because I’m no expert — dealing with structural unemployment would be cheaper. The Fed, more than anyone else, knows how to increase inflation and they have figured out the cheapest way to do it. You might think, however, there are personnel issues at the Fed, i.e. too many hawks, that make “doing the right thing” impossible. And so, you might think, political pressure would have an effect on policy in the short run. I’m not sure why you think that. The FOMC meets only ever so often and they never take radically new action one way or the other. Policy stickiness is one of the most reliable facts about Fed policy. According to Goodfriend and King, even Volcker’s radical disinflation started over a year after he became chairman (and it took another 1/2 year to start to see employment effects). BTW, we’re not changing the chairman for a long while and even supposing Bernanke was suddenly reborn a Sumnerian, how do you think employers would react if the Fed announced bold action one way or the other? Ditto for massive institutional changes at the Fed.
In any case, with the Bernanke Put getting close to its strike price, the monetary policy car is going in the right direction. Given the current institutional framework, political pressure is not going to speed the car up.
But we can do more about structural unemployment. All it would take is for some enterprising think-tank researcher to buddy up with a promising young politician ((I’m thinking there may be an “only Nixon can go to China” effect here, but I’m sure a charming Democrat could pull it off too)) and to come up with a bold plan to deal with it. Radical changes to the UI system. Radical policies to deal with labor immobility. Radical interventions in the housing market. If engineered and sold to help reduce unemployment and as a package deal, these policies would be supported by both sides.
PS – We shouldn’t look to Europe for examples for good labor market institutions… the EU’s unemployment rate is higher than the US’s right now.