LABOR MARKET MEASURES
"The share of long-term unemployment has been immensely high, and
can be very stubborn in bringing down. That is something that I
watch closely. Again, that remains exceptionally high.
But it has come down from something like 45 percent to high 30s. But
that's certainly in my dashboard ... I do think most research
suggests that due to demographic factors, labor force participation
will be coming down and there has been a downward trend now for a
number of years.
I think there is also a cyclical component in the fact that labor
force participation is depressed, and so it may be that as the
economy begins to strengthen, we could see labor force participation
flatten out for a time, as discouraged workers start moving back
into the labor market.
So that is something I'm watching closely. The committee will have
to watch. There are different views on this, within the committee,
and it's hard to know definitively what part of labor force
participation is structural versus cyclical. It is something to
I've also mentioned in the past measures of labor market turnover.
You mentioned 'quits.' Remarkably large share of workers quit their
jobs every month, usually going directly into another job. I take
the quit rate in many ways as a sign of the health of the economy,
when workers are scared they won't be able to get other jobs, they
show a reduced willingness to quit their jobs. Quit rates now are
below normal pre-recession levels.
The hires rate, however, remains extremely depressed. And I take
that as a sign of a weaker labor market.
But most of these measures, although they don't paint the identical
extent of improvement, if you ask about my dashboard, the dial on
virtually all of those things is moving in a direction of
NUMERICAL FORWARD GUIDANCE
"The reason the committee felt that the time had come to revise the
forward guidance is not because we think it has not been effective.
I believe the committee does think it's been effective.
I think it's had a very useful impact in helping markets understand
our expectations and shaping their own. But as the unemployment rate
gets closer and closer to 6 and a half percent, that seems like the
one that is likely to be breached.
The question is, markets want to know, the public wants to
understand beyond that threshold, how will we decide what to do.
So the purpose of this change is simply to provide more information
than we have in the past, even though it is qualitative information,
about what we will be looking at as the unemployment rate declines
below 6 and a half percent in deciding how long to hold the federal
funds rate at this 0 to a quarter percent range."
"There are a lot of kids who are shacking up with their families,
and probably would like to be going out and acquiring places of
their own, whether it's an apartment or a home ... There is a lot of
demographic potential there for new household formation that would
ultimately generate new construction, either single or multi-family,
and the level of rates I think does matter. And the fact that they
are low now, I think, is something that should serve as a stimulus
to people coming back into the housing market. And we have not yet
seen a pickup after the lull, after interest rates went up last
I do expect housing activity to begin to expand more rapidly later
"Wage growth has really been very low. I know there is perhaps one
isolated measure of wage growth that suggests some uptick. But most
measures of wage increase are running at very low levels. In fact,
with productivity growth we have and 2 percent inflation, one would
probably expect to see on an ongoing basis something between perhaps
3 and 4 percent wage inflation would be normal."
"Wage inflation has been running at 2 percent. So not only is it
depressed, signaling weakness in the labor market, but it is
certainly not flashing. An increase in it might signal some
tightening or meaningful pressures on inflation, at least over time,
and I would say we are not seeing that."
"In terms of the situation in Ukraine and Russia, it's something we
are monitoring very closely. We discussed in our meeting, the direct
trade linkages or exposures of the U.S. banking system to the
Ukraine and Russia are not large ... We are not seeing meaningful
impacts now. But obviously, there are geopolitical risks here, that
it's very important for us to be attentive to and to keep our eye
"And we are not seeing broader global financial repercussions. But
if this were to escalate, that would certainly be something that
would be on our radar screen. But we are not seeing that now and
we're monitoring closely."
"With respect to the issue of short-term unemployment, and it being
more relevant for inflation and a better measure of the labor
market, I've seen research along those lines. I think it would be
tremendously premature to adopt any notion that says that that is an
accurate read, on either how inflation is determined or what
constitutes slack in the labor market."
WEATHER'S IMPACT ON ECONOMY
"Certainly weather has played an important role in weakening
economic activity in Q1. It's not the only factor that is at work,
and most projections for growth in the first quarter are reasonably
weak. It's an important factor. It's not the only factor.
But, I would say it's likely in the view of most of the committee to
begin to wash out in the second quarter, and we can even see some
Now, I would say, I know what we have said about weather is a little
bit complicated and confusing. So let me just say between December
and January, the committee saw data that led it to be quite a bit
more optimistic about the economic outlook."
[to top of second column]
WHEN TO RAISE INTEREST RATES AFTER QE ENDS
"So the language that we use in the statement is 'considerable
period.' ... This is the kind of term it's hard to define, but ...
probably means something on the order of around six months, or that
type of thing."
What the statement is saying is it depends what conditions are like.
We'd need to see where the labor market is, how close are we to our
full employment goal; that will be a complicated assessment, not
just based on a single statistic. And how rapidly are we moving
toward it? Are we really close and moving fast? Or are we getting
closer but moving very slowly?
And then what the statement emphasizes — and this is the same
language we used in December and January — we used the language,
especially if inflation is running below our 2 percent objective.
Inflation matters here too, and our general principle tries to
capture that notion.
If we have a substantial shortfall in inflation, if inflation is
persistently running below our 2 percent objective, that is a very
good reason to hold the funds rate at its present range for longer."
PATH OF INTEREST RATES
"And we have expressed a number of opinions about the likely path of
rates. In particular, the committee has endorsed the view that it
anticipates it will be a considerable period after the asset
purchase program ends before it will be appropriate to begin to
And of course, on our present path, that is not utterly pre-said, we
would be looking at next fall. So I think that is important guidance
... I think it suggests a shallower glide path. What the committee
is expressing here, I would say, is its forecast of what will be
appropriate some years from now, based on the understanding that we
have developed about what are the economic forces that have been
driving economic activity. We have had a series of years now in
which growth has proven disappointing."
"The new guidance does not indicate any change in the policy
intentions of the FOMC, but instead, reflects changes in the
conditions we face ... progress in the labor market has been more
rapid than we had anticipated. While inflation has been lower than
the committee had expected, although the threshold served well as a
useful guide to policy over the past year, last December the FOMC
judged it appropriate to update that guidance, noting that the
current target range for the federal funds rate would likely be
maintained well past the time the unemployment rate declines below 6
and a half percent, especially if projected inflation continues to
run below the committee's 2 percent longer-run goal."
UPWARD DRIFT IN INTEREST RATE PROJECTIONS
"To my mind there is only very limited upward drift ... The
committee in assessing the economy, if you compare today's
assessment with December's, is virtually identical.
As I mentioned, unemployment has come down. The labor market more
broadly I think has improved a little more than we might have
expected. And that slightly more rapid improvement in the
unemployment picture might explain ... a little bit of the upward
shift in those dots.
But more generally, I think that one should not look to the 'dot
plot' so to speak as the primary way in which the committee wants
to, or is, speaking about policy to the public at large."
"Inflation has continued to run below the committee's 2 percent
objective. Given that longer-term inflation expectations appear to
be well anchored, and in light of the ongoing recovery in the United
States and in many economies around the world, the FOMC continues to
expect inflation to move gradually back towards its objective. The
committee is mindful that inflation running persistently below its
objective could pose risks to economic performance."
LOWER INTEREST RATES
"The statement continues to note that in deciding on the pace for
removing accommodation, the committee will take a balanced approach
to attaining its objectives."
The statement now adds the committee's current anticipation: that
even after employment and inflation are near mandate-consistent
levels, economic conditions may, for some time, warrant keeping
short-term interest rates below levels the committee views as normal
in the longer run.
This guidance is consistent with the paths for appropriate policy as
reported in the participants' projections, which show the federal
funds rate for most participants remaining well below longer-run
normal values at the end of 2016."
IMPACT OF FINANCIAL CRISIS
"Although FOMC participants provide a number of explanations for the
federal funds rate target remaining below its longer-run normal
level, many cite the residual impacts of the financial crisis, and
some note that the potential growth rate of the economy may be lower
at least for a time."
"Labor market conditions have continued to improve. The unemployment
rate at 6.7 percent is three-tenths lower than the data available at
the time of the December meeting.
Further, broader measures of unemployment such as the U6 measure,
which includes marginally attached workers and those working part
time but preferring full-time work, have fallen even more than the
headline unemployment rate over this period. And labor force
participation has ticked up."
(Compiled by Lucia Mutikani, Margaret Chadbourn, Anna Yukhananov,
Elvina Nawaguna and Lisa Lambert; editing by Paul Simao)
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