Still a Question Mark' Around Full Employment, Fed's Brainard Says -- Update

By David Harrison Features Dow Jones Newswires

Federal Reserve officials need to look at how different demographic groups are faring in the labor market as they make monetary policy decisions, Fed governor Lael Brainard said Monday.

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Although the Fed can't use its traditional policy tools of raising or lowering interest rates to target struggling groups for help, it should look at the obstacles they face when it considers the overall health of the labor market, she said.

"Understanding these barriers and efforts to address them is vital in assessing maximum employment as well as potential growth," she said. "Maximum employment is inherently an inclusive goal."

One of the Fed's mandates from Congress is to use monetary policy to keep the labor market functioning at full strength so that essentially all those who want a job can find one. But it isn't always easy to tell when that goal has been met. Ms. Brainard said officials need to keep in mind that full employment evolves over time, depending on economic conditions.

If certain groups continue to struggle even though the overall unemployment rate is falling, that suggests the goal of full employment hasn't yet been met, she said, pointing to the recent, uneven economic recovery in which black workers or workers with less education have struggled more than their white or better-educated counterparts.

The Fed held interest rates near zero for seven years while the unemployment rate fell to draw workers back into the labor force. The central bank's benchmark short-term interest rate is still very low -- in a range between 0.75% and 1% -- though the unemployment rate has fallen to 4.4% in April, which is below many estimates of maximum employment.

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"This approach to maximum employment has allowed [the Fed] to navigate the current recovery in a way that has likely brought more people back into productive employment than might have been the case with a fixed, aggregate unemployment-rate target based in precrisis norms," she said.

She didn't comment on the Fed's current path of rate increases in her prepared remarks -- including the question of whether it will lift borrowing costs at its next meeting. in June. But she said the Fed "will continue to navigate the recovery" to achieve the central bank's twin goals of low, stable inflation and full employment.

Ms. Brainard is one of several Fed officials to spotlight economic disparities among demographic groups. Although officials frequently note that their congressionally-imposed mandates require them to target the economy as a whole, many have said they look closely at how the economic expansion has varied among different groups.

In the past, Ms. Brainard has been one of the central bank's most outspoken advocates of moving cautiously to raise interest rates, arguing that holding down borrowing costs helps struggling workers and households get back on their feet. But she supported the Fed's most recent rate increase, in March.

Projections from Fed officials anticipate two more quarter-percentage-point rate increases this year and many traders, analysts and economists expect the next rate increase to come next month.

Write to David Harrison at david.harrison@wsj.com

It is too soon to declare victory on the labor market's recovery from the recession despite recent improvements, Federal Reserve Governor Lael Brainard said Monday.

"For me I think there's still a question mark around are we there yet," she said.

Speaking at a conference organized by the Federal Reserve Bank of Minneapolis, Ms. Brainard said Fed researchers estimate the labor market is now strong enough to absorb new people looking for work. But that has not translated into accelerating inflation, suggesting there might be more room for improvement in employment, she said.

"We really aren't seeing much progress on core inflation," she said. "If anything the last few months we've seen some stalling out of core inflation."

Core prices, which strip out volatile food and energy prices, fell in March from the prior months for the first time since 2010. Analysts blamed changes in cellphone plan pricing but the drop has raised worries that the economy might be slowing down.

Ms. Brainard didn't discuss the prospect of another interest rate increase at the Fed's June meeting. But her comments suggest she remains concerned about the health of the labor market.

Over the past few weeks, several Fed officials have said the labor market has returned to full employment, which means every worker looking for a job can find one. Ms. Brainard's remarks indicate some skepticism that employment is back to full strength.

She said the Fed "will continue to navigate the recovery" to achieve the central bank's twin goals of low, stable inflation and full employment.

In the past, Ms. Brainard has been one of the central bank's most outspoken advocates of moving cautiously to raise interest rates, arguing that holding down borrowing costs helps struggling workers and households get back on their feet. But she supported the Fed's most recent rate increase, in March.

Projections from Fed officials anticipate two more quarter-percentage-point rate increases this year and many traders, analysts and economists expect the next rate increase to come next month.

In her prepared remarks she said Fed officials need to look at how different demographic groups are faring in the labor market as they make monetary policy decisions.

"Understanding these barriers and efforts to address them is vital in assessing maximum employment as well as potential growth," she said. "Maximum employment is inherently an inclusive goal."

One of the Fed's mandates from Congress is to use monetary policy to keep the labor market functioning at full strength so that essentially all those who want a job can find one. But it isn't always easy to tell when that goal has been met. Ms. Brainard said officials need to keep in mind that full employment evolves over time, depending on economic conditions.

If certain groups continue to struggle even though the overall unemployment rate is falling, that suggests the goal of full employment hasn't yet been met, she said, pointing to the recent, uneven economic recovery in which black workers or workers with less education have struggled more than their white or better-educated counterparts.

The Fed held interest rates near zero for seven years while the unemployment rate fell to draw workers back into the labor force. The central bank's benchmark short-term interest rate is still very low -- in a range between 0.75% and 1%--though the unemployment rate has fallen to 4.4% in April, which is below many estimates of maximum employment.

"This approach to maximum employment has allowed [the Fed] to navigate the current recovery in a way that has likely brought more people back into productive employment than might have been the case with a fixed, aggregate unemployment-rate target based in precrisis norms," she said.

Write to David Harrison at david.harrison@wsj.com

(END) Dow Jones Newswires

May 22, 2017 21:32 ET (01:32 GMT)