Fed’s Lacker says U.S. may be close to maximum employment

July 9 (Bloomberg) -- Federal Reserve Bank of Richmond President Jeffrey Lacker said the U.S. may already be close to maximum employment from a monetary policy standpoint and that policy makers can’t do much more to cut the jobless rate.

“Given what’s happened to this economy, I think we’re pretty close to maximum employment right now,” Lacker said today in a Bloomberg radio interview on “The Hays Advantage” with Kathleen Hays and Vonnie Quinn. “That might be shocking. That might be surprising.”

Fed policy makers believe the U.S. central bank has limited control over the jobless rate because the employment level is driven by “non-monetary factors that affect the structure and dynamics of the labor market,” according to the January statement from the Federal Open Market Committee. The jobless rate was unchanged at 8.2 percent in June.

Lacker, who has dissented from all four FOMC decisions this year, is at odds with colleagues on what the Fed should do to boost the economy. He said in a June 22 statement that he opposed the FOMC’s $267 billion extension of its Operation Twist program because it may spur inflation and won’t give the economy a significant boost.

San Francisco Fed President John Williams said today the U.S. central bank must maintain “extraordinary vigilance” to see if the slowing economy requires additional monetary stimulus. “If further action is called for, the most effective tool would be additional purchases of longer-maturity securities, including agency mortgage-backed securities,” Williams said in a speech in Coeur D’Alene, Idaho.

‘Ideal World’

“From the point of view of monetary policy, employment is close to maximum right now,” Lacker said in the Bloomberg radio interview. “Is it an ideal world? Should we be happy with it? No. But I don’t think there’s much that monetary policy ought to be thought of as doing about it.”

Fed officials in June forecast the jobless rate will average 8 percent to 8.2 percent in the fourth quarter of this year. The unemployment forecasts centered around 7.5 percent to 8 percent in the fourth quarter of next year and 7 percent to 7.7 percent in late 2014.

The reserve bank chief also said that “some of the slowdown is real” for the U.S. economy though the reduction in growth isn’t severe enough to tip the economy back into a recession. “We’re just in a situation where growth is going to fluctuate between somewhat satisfactory and disappointing,” Lacker, 56, said in today’s interview.

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