By Steven K. Beckner
JACKSON HOLE, Wyoming (MNI) – Richmond Federal Reserve Bank
President Jeffrey Lacker and St. Louis Fed President James Bullard cast
doubt Saturday on contentions that further Fed easing can be effective
in reducing unemployment.
Lacker in particular maintained that much of the 8.3% is
“structural” at the Kansas City Fed’s annual symposium and suggested
that the non-accelerating inflation rate of unemployment (NAIRU) is
higher than normal, suggesting less resource slack and hence less Fed
room to ease without inflationary consequences.
Stanford Professor Edward Lazear, a former chairman of President
Bush’s Council of Economic Advisors, presented a paper arguing that most
of the unemployment is “cyclical” and hence amenable to monetary easing.
Lacker said the JOLTs data on job openings in various industries
are of “limited” use for measuring skill “mismatches” in the labor
market that tend to hold up the unemployment rate.
Relying on the JOLTS data is “like looking under the street lamp
and saying well, i haven’t found any mismatches,” he said.
But Lacker said he is seeing ample evidence of such mismatches in
his district, which runs down the East coast from Maryland through the
“In manufacturing in the Carolinas, we’ve lost a ton of jobs in
textiles, apparel and furniture,” he said, yet there is a “scarcity” of
skilled machinists, aircraft mechanics and other trades.
“So I think the coarseness of the data hide what could be a fair
amount of skills mismatch,” Lacker continued. “I think it’s quite
unhelpful to equate structural and permanent factors.”
“These skill gaps that we see are going to be overcome,” Lacker
went on. “People are working on training programs … . Over time these
gaps will close, but in the meantime these are real costs, real
impediments to clearing labor markets the way we want them to.”
“And it’s not clear monetary policy can obviate these costs in any
meaningful way,” Lacker added.
“I think the useful distinction is between the unemployment rate
that would prevail several years from now in the absence of shocks and
with appropriate monetary policy and the unemployment rate that now
would correspond to maximum employment … . Sept. 1, 2012 maximum
unemployment,” he said. “I think that’s a useful distinction to carry
around. the former is likely to be quite smooth (without shocks) … the
latter I see no economic reason why the natural rate defined that way
isn’t likely to respond to a variety of shocks, isn’t likely to vary
quite substantially,” he said.
Bullard said “it’s the elephant in the room for this conference as
to whether the U.S. economy went through some kind of structural shift
associated with this very large financial crisis and its aftermath. If
you look at the level of real GDP.”
“It sure looks like the economy was on one trend pre-crisis and is
on a very different trend post-crisis, and I think the longer this goes
on, the stronger the statistical evidence will be that we’re on a
different trend,” he continued.
“Now you can posit ideas about why this is, but it does have
startling policy implications,” Bullard said. “It could mean that the
cyclical adjustment that can be attained in a normal business cycle
sense has already happened and that what goes on from here is very
different from the ordinary reaction to a recession that you might
normally be thinking of.”
** MNI **