CHARLOTTESVILLE, Va. - Richmond Federal Reserve Bank President Jeffrey Lacker Friday said jobs growth in the U.S. is on a sluggish trend, and said the central bank's policymaking body should avoid numerical thresholds for monetary policy but use qualitative language to underscore its commitment to price stability.
Speaking to reporters after a lunchtime address at the University of Virginia, Lacker was asked about the mixed signals that appear to be emanating out of the jobs market. He said it appeared that in the second quarter job growth was fluctuating "around a sluggish trend," and with the September jobs report "I'm heartened that seems to be what's happening."
"I'm heartened we haven't seen a secular decline in job growth," he said.
Commenting on the push by some Fed officials to tie the future path of monetary policy to the unemployment rate, Lacker said doing so would run the risk of the Fed "overemphasizing" the connection between monetary policy and unemployment.
"There is a risk of leading people to believe we can do more about labor market conditions than we really can," he said.
Asked by MNI what he thought of a proposed plan that would make inflation its cornerstone but still with raising employment as the goal, Lacker said he does favor looking for ways to be more transparent about how the FOMC believes it will react to future economic developments.
"Having said that, I'm wary about including any numerical thresholds apart from our stated 2% inflation objective," he added.
"The unemployment rate can fall for good or bad reasons," he argued. An improvement in labor markets could be accompanied by a resurgence in the labor force that keeps the unemployment rate from falling, Lacker added.
"So I think picking a single macroeconomic statistic as a summary of labor market conditions is risky," he said.
However, Lacker said it would be valuable for the Fed to emphasize its commitment to price stability in its forward guidance.
"We shouldn't lead people to believe we would wait until we thought we had lost a measure of confidence in price stability before we acted," he said, as sometimes the Fed might need to act preemptively.
While some within the Fed have pointed to the impasse on Capitol Hill as one reason why the Fed must continue to do all it can to help the recovery, Lacker countered that political gridlock "is just a reality we have to accept this economy needs to deal with."
"Political gridlock doesn't imply that monetary stimulus isn't inflationary," he said.
"It's like a game of chicken" between Fed and Congress, Lacker said.
Taking questions on financial regulation from the audience earlier, Lacker said he does not believe the Dodd-Frank Act has provided the country with "a stable and sustainable" framework for regulating the financial sector. "I don't think we've resolved some fundamental questions," he said.
The focus should be on measures to improve market discipline he said, as opposed to limiting risks that the government might have to bail out in future, and voiced his support for living wills in which failing firms go through unassisted bankruptcy.
He projected "further episodes of instability," unless further action is taken by Congress.
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