But because that never happened, he said, "It
seems less likely that we will experience a growth spurt in the
next couple of years that would engender concerns about rapid
wage pressures and changes in inflation expectations."
In a speech largely about the long-term challenges for the
American economy, including slowing productivity and rising
income inequality, Tarullo said monetary policy could lay the
groundwork for improving the potential growth rate by reducing
labor market slack.
Some Fed officials have speculated that damage to the economy
from the recession has changed the structure of the labor
markets, so that undesirable wage pressures could kick in even
when unemployment is well above its historical norm of about 5.5
But because it is difficult to know just how much slack there is
currently in the labor markets, Tarullo said on Wednesday, "We
are well advised to proceed pragmatically."
While the Fed should be attentive to signs that wage pressures
are rising, "We should not rush to act preemptively in
anticipation of such pressures based on arguments about the
potential increase in structural unemployment in recent years,"
Many Fed officials appear to agree with Tarullo that rate rises,
once they start, can be gradual, with the median forecast from
the Fed's 16 current policymakers suggesting that rates are
likely to be around 2.25 percent by the end of 2016, well below
the historical norm of 4 percent.
(Writing by Ann Saphir; reporting by Jonathan Spicer; editing by
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