In June 2012, Janet Yellen, then the Vice Chairman of the Federal Reserve, addressed an audience in Boston with what for the time seemed like a radical departure. It was the latest in a string of them, for conditions throughout the “recovery” period never did quite seem to hit the recovery stride. Because of that, there was constant stream of trial balloons suggesting how the Federal Reserve might try to overcome this economic inertia.

At that juncture about five years ago, there were only whispers of “structural” economic forces conspiring against full recovery. As Ms. Yellen said in her speech:

All told, only about half of the collapse in private payroll employment in 2008 and 2009 has been reversed. A critical question for monetary policy is the extent to which these numbers reflect a shortfall from full employment versus a rise in structural unemployment. While the magnitude of structural unemployment is uncertain, I read the evidence as suggesting that the bulk of the rise during the recession was cyclical, not structural in nature.

One possible means for addressing the persistent shortfall was ostensibly the topic of her lecture. The term “optimal control” was not then a familiar one, though its academic use was already quite long by that time. It originated not in Economics but in the applied mathematics of engineering and the like. To truly determine the “optimal” option, so it was thought, thousands upon thousands of statistical simulations are run in order to plot the, as the name implies, ideal solution.

Applying the idea to monetary economics, a central bank like the Fed may look upon the conditions of 2012 and realize easily their suboptimal nature. Under a “rules based” paradigm, like the Taylor Rule, the time even by then had already passed where the Fed “should” have been raising rates and “tightening.” Had they done so, however, that risked leaving so many on the wrong side of the employment divide. Using models like ferbus, the Fed staff seemed to have run projections that suggested what came to be known as “lower for longer.”

In orthodox terms, it simply meant that the Fed would “accommodate” beyond the stretch anyone had foreseen and allowing the inflation rate to rise above target for maybe even a prolonged period – all so that “cyclical” unemployment would be given enough time to more completely unwind.