Lockhart Says Fed Shouldn’t Tie Policy to Jobless Rate
Federal Reserve Bank of Atlanta President Dennis Lockhart said the Fed shouldn’t tie policy to a single data point like the unemployment rate and instead should track broader measures of the job market.
“It’s appropriate to be cautious about relying on a single indicator of labor market trends, for example the unemployment rate, to determine whether the condition of substantial improvement has been met,” Lockhart said today in a speech in Chattanooga, Tennessee. An assessment of employment and the economy needs to be “reinforced by other indicators.”
The Atlanta Fed chief on Oct. 24 voted with the Federal Open Market Committee to continue buying $40 billion in mortgage bonds each month, aiming to reduce 7.8 percent unemployment. The central bank is also purchasing $45 billion of longer-term Treasuries, in a securities-swap program called Operation Twist scheduled to end in December.
The unemployment rate can be influenced by gains in part- time jobs or by workers without jobs dropping out of the labor force because they are discouraged, Lockhart said in remarks prepared for a speech to the Chattanooga Downtown Rotary.
In recent months unemployment has fallen, while “job growth has hardly begun to build positive momentum,” he said.
Fed district bank presidents have voiced differing views on the benefit of more easing, with Minneapolis Fed President Narayana Kocherlakota saying on Oct. 30 that policy was “too tight” even after record accommodation. Richmond Fed President Jeffrey Lacker, after voting against the Oct. 24 FOMC statement, said additional stimulus could cause “an unwanted increase in inflation.”
Kocherlakota has said interest rates should stay low until unemployment falls below 5.5 percent, so long as the outlook for inflation does not breach 2.25 percent. Charles Evans, the president of the Chicago Fed, has said the central bank should promise to keep rates low until the unemployment rate falls to 7 percent, so long as inflation does not exceed 3 percent.
U.S. stocks rose today after the U.S. Labor Department reported the number of initial claims for unemployment benefits fell last week and the Institute for Supply Management’s U.S. factory index rose in October. The Standard & Poor’s 500 Index gained 1 percent to 1,427.14 at 12:32 p.m. in New York.
Lockhart also said the U.S. economy has been growing at about a 2 percent rate, “stuck in a slow-growth mode,” with inflation close to the FOMC’s explicit target of 2 percent.
“I think the most plausible forecast is continued modest growth with gradual employment gains,” Lockhart said. The outlook could be changed by “downside risks of economic shocks” as well as the possibility of improved performance if risks ease over time, he said.
The Fed is trying to spur a weak recovery. Gross domestic product climbed by 2 percent in the third quarter after 1.3 percent in the prior quarter, down from 4.1 percent in the fourth quarter of last year.
Central bankers will know more about the job market tomorrow, when the Labor Department issues employment data for October, the last monthly report before the Nov. 6 presidential election. The median estimate of economists in a Bloomberg survey calls for 125,000 jobs to be added in October and for the unemployment rate to rise to 7.9 percent from 7.8 percent.
Fed Chairman Ben S. Bernanke has said the U.S. economy is vulnerable to the so-called fiscal cliff, the more than $600 billion of tax increases and spending cuts that will kick in automatically at the end of the year unless Congress acts. The Congressional Budget Office said in an Aug. 22 economic report that fiscal tightening of that magnitude could cause a recession.
Lockhart, a former Georgetown University professor, has led the Atlanta Fed since 2007. The Atlanta Fed district includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi, and Tennessee.
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