NEW YORK – Labor market strife, and unemployment levels that are expected to be above 7% through 2014 support the need for accommodative monetary policy for “quite some time,” Federal Reserve Bank of San Francisco President and CEO John C. Williams said Thursday.
Because the U.S. “remains far from … maximum sustainable employment,” and with inflation in check, “it’s essential that we keep strong monetary stimulus in place for quite some time, Williams told a Santa Barbara County Economic Summit, according to prepared text released by the Fed.
Acknowledging that it is perhaps impossible to calculate the exact “natural rate of unemployment,” Williams suggested between 6% and 6.5% could be the current range, although once mismatches of jobs to potential employees’ skills and “other labor market inefficiencies” recede in the “next few years,” the rate should return to 5.5%.
“The important point is that today’s unemployment rate is about 2 percentage points above my estimate of the natural rate. That is, the elevated rate of unemployment is primarily due to a shortage of demand, not to structural changes in the labor market,” he said. The unemployment rate should drop to 7% by the end of next year, Williams predicted.
“Given this forecast, the unemployment rate will remain above the natural rate for several more years,” he added.
