NEW YORK – The Fed funds rate will not have to remain near zero until most of the employment losses from the recession are recovered, Federal Reserve Bank of Atlanta President and Chief Executive Officer Dennis P. Lockhart said today.
“I continue to support the current stance of interest rate policy,” he said at a breakfast at Atlanta Technical College according to prepared text of his remarks, which were released by the Fed. “But the time is approaching when it will be appropriate to consider recalibrating interest rate policy. I do not believe that time has yet arrived. The conditions that require a change of policy are not yet at hand. However, as the economy continues to improve and financial markets find firmer ground, extraordinarily low policy rates will not be needed to promote recovery and will become inconsistent with maintaining price stability.”
He continued, “The implication is that the policy rate may have to begin to rise even while unemployment is considerably higher than before the recession. I'm very concerned about unemployment, and certainly employment trends should be a critical consideration in setting policy. But I accept that good policy, even in circumstances of unacceptable levels of unemployment, may incorporate higher interest rates.”
Additionally, Lockhart said inflation is “not currently a major concern.”
Lockhart’s speech centered on employment. He said despite the recovery, the labor market has yet to bounce back, a situation he blames on a surge in labor productivity growth. “This productivity growth has allowed the economy to expand and firms to record better sales and profits without yet adding many workers to payrolls,” he said. “Historically, productivity has always been strong just after recessions. So the pattern we're seeing is not abnormal.”
But, he noted, while the economy still faces risks that could hinder sustained growth, he is confident recovery will continue. “The mix of sources of strength underpinning the recovery will evolve,” he said. “Former contributors to growth will beget new contributors.”
While the addition of Census jobs will skew the employment report, even if there is a large gain in non-farm payrolls, “it's fair to say there will remain a large excess of workers looking for jobs relative to the demand for workers in the economy,” Lockhart said. “Total jobs lost in the recession and immediate aftermath approach 8 million. This gap is likely to close only gradually. And, further, the resulting slow growth of wages and salaries has the potential to limit growth of consumer spending for a while.”
