Federal Reserve Bank of Boston President Eric Rosengren said the drop in the U.S. jobless rate, while “good news,” isn’t as favorable as he would like because it represents workers leaving the labor force.
“While the rate is certainly a very favorable rate, I would highlight that a lot of it is because people pulled out of the workforce,” Rosengren said today in a speech in Boston. “It was good news. It’s just not as good news as I would actually like to see.”
Fed policy makers are discussing the need for further easing to stimulate the economy and reduce unemployment more quickly. The debate may be complicated by today’s report of an unexpected decline in the jobless rate last month.
“We’re trying to do what we can to get the economy growing more rapidly,” Rosengren, 54, said at the Massachusetts Investor Conference.
A change in the unemployment rate of 0.5 percentage point is equivalent to about 750,000 jobs, and “if we’re able to do something without a large cost, that’s an awful lot of Americans that would have jobs that would not have had jobs, had we not taken that action,” Rosengren said.
The unemployment rate fell by 0.4 percentage point to 8.6 percent in November, the Labor Department said today. The rate was forecast to hold at 9 percent, according to the median estimate in a Bloomberg News survey of economists. Nine of 84 analysts surveyed by Bloomberg News forecast a decline in the jobless rate; all nine said it would fall to 8.9 percent.
The decrease reflected a 278,000 gain in employment at the same time 315,000 Americans left the labor force.
Options for further Fed stimulus include a third round of securities purchases and changes to guidance on how long interest rates will remain near zero.
“The sooner the economy returns to full employment, the sooner we’re going to be able to normalize interest rates,” Rosengren said. “Our goal is to have a normalized economy, and the reason we’re keeping rates so low at this time is to try to get that normalized economy.”
Responding to an audience question about the European debt crisis, he said countries have made progress toward “having more fiscal discipline.” He added: “They have a long way to go.”
Authorities must also “aggressively address the fact that many of their large banks are undercapitalized,” Rosengren said. Large banks having “financial difficulties” shouldn’t be paying dividends, he said.
Rosengren said in a Nov. 16 speech that the central bank still has power to boost the economy through lower interest rates and that a “common misconception” is that further monetary stimulus won’t help growth.
Measures to add stimulus to the economy drew dissent from Philadelphia’s Charles Plosser, Narayana Kocherlakota of Minneapolis and Richard Fisher of Dallas at the Fed’s August and September meetings. A November decision to refrain from a third consecutive move drew dissent from Chicago’s Charles Evans.