Tags: lacker | fed | unemployment

Richmond Fed President: More Easing Won't Fix Unemployment, May Fuel Inflation

Monday, 07 May 2012 08:47 PM

Federal Reserve Bank of Richmond President Jeffrey Lacker said much of U.S. unemployment results from structural weaknesses like inadequate training that can’t be fixed by additional Fed stimulus.

“Some commentators are urging the Fed to take additional action as long as the unemployment rate remains elevated,” Lacker said Monday in Greensboro, North Carolina. “But if elevated unemployment reflects largely fundamental factors rather than insufficient spending, such stimulus might have little impact on unemployment and instead just raise the risk of pushing inflation up.”

Lacker has dissented at all three meetings this year of the policy-setting Federal Open Market Committee. On April 25 the FOMC said the economic outlook will probably warrant “exceptionally low levels for the federal funds rate at least through late 2014.” Lacker disagrees, saying in an April 27 statement that “an increase in interest rates is likely to be necessary by mid-2013” to hold down inflation.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Fed officials have discussed how much of the 8.1 percent U.S. unemployment is caused by “structural” factors such as a mismatch of worker skills and available jobs.

Fed Vice Chairman Janet Yellen has said she’s concerned structural unemployment may rise if “the labor market heals too slowly.” Chairman Ben S. Bernanke said that “continued weakness in aggregate demand is likely the predominant factor” in unemployment.

‘Substantial Portion’

“The effects of unemployment insurance benefits together with the effects of labor market inefficiencies could plausibly account for a quite substantial portion of our elevated unemployment rate,” Lacker said in remarks prepared for business and community leaders.

Unemployment benefits could be responsible for as much as 1.7 percentage points of joblessness, and “labor market inefficiencies” such as difficulty of matching workers with skilled jobs could together account for as much as 5.9 percentage points of unemployment, Lacker said.

Payrolls climbed by 115,000 workers in April, the smallest increase in six months, Labor Department figures showed last week. The jobless rate fell to a three-year low of 8.1 percent as people left the labor force, adding to concerns that the economic expansion is cooling.

Investing in job training and education may more successfully address the labor market weakness rather than Fed policy, Lacker said.

“I believe such investments are likely to yield greater benefits for both workers and the economy as a whole than efforts aimed at providing short-term stimulus,” he said. “As I have noted, improvement in the skill level of the work force eventually leads to both higher productivity and wages.”

Lacker plans to visit Guilford Technical Community College tomorrow to highlight the success of these programs. He called North Carolina “a national leader in workforce development training.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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