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 In a speech here on Friday, Fed Chair Janet Yellen gave her most
detailed analysis yet of what still plagues the American labor
market five years after the recession, from stagnant wages to the
large number of part-time workers to those who have given up the
search for work.
She concluded that, though hard to measure, there is still
considerable slack in the economy and the Fed should not rush to
tighten monetary policy until the picture becomes clearer.
But with broader measures showing strong improvement, concern is
building within the Fed that Yellen's novel use of a broad range of
jobs data is more distracting than informative.
At least two Federal Reserve regional presidents have called on
Yellen and other core policymakers - Vice Chair Stanley Fischer and
others who share a dovish tilt - to set aside the range of jobs
information and focus simply on job growth and unemployment, which
they say have proven reliable over the years.
"To come in with other indicators seems to me to be falling outside
the tradition of what we've done with monetary policy. Non-farm
payrolls and unemployment are probably the best indicators," James
Bullard, president of the St. Louis Reserve Bank, said in an
interview with Reuters. "These other things, historically, have not
been good for predicting what was going to happen in the economy."
The unemployment rate in July ticked up 1/10th of a percentage point
to 6.2 percent. But it has fallen from 7.3 percent a year earlier
and is closing in on the 5.5-percent range that the Fed sees as
sustainable. Job growth in July topped 200,000 for a sixth straight
month.
Bullard, who is not a voting member this year of the Fed's
policy-setting committee, cited the labor force participation rate -
the percentage of working-age Americans who are actually working or
want to work - as an indicator under intense scrutiny, even though
the Fed rarely cared much about it in the past.
Charles Plosser, head of the Philadelphia Fed and a voting member
this year, said Yellen's speech on Friday underscored the issue of
trying to solve labor market problems that the Fed simply cannot
fix.
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"We've got ourselves tied up in a very difficult problem because we
focused so much on employment," he told Reuters.
"There is no literature, even theoretical, that tells us that
monetary policy can reduce the number of part-time people employed
for economic reasons," he added, mentioning one piece of jobs data
that Yellen often cites. "We're trying to get the labor market to
make all these changes at the margins, but we don't know how to do
it or whether it will work."
Plosser and Bullard are two of the handful of "hawks" on the Fed's
17-member body. While their criticisms can be loud, a quieter group
of centrist policymakers, including five Fed governors, often hold
sway over the direction of policy.
Bullard stopped short of saying the issue over labor market data was
dividing the Fed, saying that discussion of the topic was a "healthy
debate".
"We love to argue about the data," he said, describing the debate as
appropriate.
But that the Fed is debating the issue is in itself significant.
Typically, central bankers agreed which pieces of data to focus on
and then debated what policy should follow. Now it seems the data is
under the microscope as well.
"If you have variables you like, and think (they) predict the
economy, then you add another variable in there, what you’re going
to find is that does not help you predict what has happened in the
last 50 years in the U.S. economy," Bullard said.
(Reporting by Michael Flaherty, Jonathan Spicer and Howard
Schneider; Editing by Leslie Adler)
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