Fed's Lockhart: 'A Way to Go' Before Max Employment Objective Achieved

WASHINGTON — Despite the progress that has been realized in lowering the unemployment rate from its peak levels, "there's a way to go before the Fed can claim that the maximum employment objective has been achieved," Atlanta Federal Reserve President Dennis Lockhart said Monday.

Lockhart also noted "slower" employment dynamics overall - reflecting both hires and separations in the form of resignations, layoffs, and retirements - adding that data on full time and part time work suggest that "the unemployment rate does not fully capture the true underutilization of labor resources today in our economy."

In prepared remarks prepared for delivery at a Louise Blouin Foundation Creative Leadership Summit, Lockhart overall made no direct mention of the Fed's current monetary policy, except to restate his official economic outlook where he has "assumed we are experiencing a temporary spell of low productivity growth that will correct itself."

In his outlook presented at last week's Federal Open Market Committee meeting, "I am assuming this will happen as demand kicks into higher gear and as businesses expand production somewhat faster than they expand their payrolls," he added.

The direction of productivity was indeed one element of what Lockhart referred to as his "mojo triad" - new businesses, employment dynamics and productivity - in trying to assess whether the U.S. economy was losing its dynamism.

Overall, Lockhart said that evidence points to a declining U.S. "economic dynamism," although "some of the decline is cyclical in nature and will reverse itself over time."

He also underlined that public policies and monetary policy can play a role to remove obstacles and encourage growth and entrepreneurship.

"The public sector can contribute with positive, pro-growth actions that address economic fundamentals, such as investment in human capital and critical, productive infrastructure," he said.

"Monetary policy can help deliver appropriately favorable interest rate conditions that can promote a faster economic recovery, always in a context of low and stable inflation," he added.

"Monetary policy can also play a critical role in creating the most favorable conditions for other policy actions to do their work," he said.

On the productivity front, he pointed out that "labor productivity growth is averaging significantly below historic norms."

Data also suggest that business formation has slowed, Lockhart stressed, partly as a result of tighter credit standards.

That being said, "this situation is improving as real estate values rise and credit standards ease somewhat," he expects.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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