St. Louis Federal Reserve Bank President James Bullard Wednesday argued that monetary policy may not be the ideal tool to tackle the nation's jobs crisis, and that more direct policies are needed, while the Fed would be better served focusing more on its price stability mandate.
In remarks prepared for delivery at the Hyman Minsky Conference hosted by the Levy Institute in New York, Bullard said that "the essential problem is that monetary policy is not a good tool to address labor market inefficiency."
He noted that the current high level of unemployment is causing some to suggest the policy-setting Federal Open Market Committee should "put more weight" on unemployment in its decision-making process.
Bullard holds a voting position on the FOMC this year, and he countered that "frontline research suggests that 'price stability' remains the policy advice even in the face of serious labor market inefficiencies."
Bullard said the FOMC should focus on keeping inflation close to its target, citing recent research that suggests deviating from this policy can lead to "substantially worse" outcomes for households.
"The idea that the Fed should 'put more weight' on unemployment does not fare well in this analysis," he said. "Such an approach may be highly counter-productive."
"Monetary policy alone cannot effectively address multiple labor market inefficiencies, and so one must turn to more direct labor market policies to address those problems," he added.
Bullard noted that the unemployment rate has declined about 0.7 percentage points each year since its post-recession peak, and that at this pace unemployment should be "in the low 7% range" by the end of 2013.
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