WASHINGTON - Federal Reserve Chair Janet Yellen on Friday rebuffed pressure from inflation hawks to move faster toward a rate hike, saying the US jobs market still shows slack despite recent gains.
But the European Central Bank’s Mario Draghi, also addressing the Fed’s central banker symposium in Jackson Hole, Wyoming, said the ECB was ready to respond to demands for more stimulus as the eurozone economy stalls.
In her much-awaited speech on the labor market, Yellen said US monetary policy needed to be pragmatic, not defined by models but focused on what a range of data says.
She acknowledged the rising calls for preemptive action to head off inflation, including from a growing minority within the Fed. And she admitted that interpreting the data on the US labor market since the Great Recession of 2008-2009 has become more complex, difficult to determine which patterns are cyclical and which represent deep structural and societal changes. “The assessment of labor market slack is rarely simple and has been especially challenging recently,” she told the symposium.
Still, she stressed that even if the unemployment rate has fallen more quickly than expected to 6.2 percent, there remains “considerable uncertainty about the level of employment.”
Taken together, she said, the data suggests that the jobless rate decline “somewhat overstates” labor market improvements. “Five years after the end of the recession, the labor market has yet to fully recover,” she said.
The Fed’s annual central banker convention in the picturesque Wyoming Rockies opened amid expectations that Yellen might cede ground to the inflation hawks, who argue that the rapid fall of the jobless rate is a clear foretoken of inflation.
They want the timeline for raising the benchmark fed funds rate from zero percent, where it has been for nearly six years, accelerated from the second half of 2015 to closer to the beginning of the year.
Philadelphia Fed chief Charles Plosser, the leading hawk on the policy-setting Federal Open Market Committee (FOMC), told Bloomberg Radio in Jackson Hole that the Fed needs to get ahead of inflationary pressures. “I’m very uncomfortable with the notion that we have to keep monetary policy at zero interest rates until the labor market has healed completely,” he said.
“The longer we wait, the bigger we risk we’ll have to raise interest rates faster when the time comes.”
But Yellen, still in her first year as Fed chair, stuck to her guns, while allowing that if the economy starts moving faster than expected, “then increases in the federal funds rate target could come sooner than the committee currently expects.”
That means, analysts said, that the Fed is not ready to shift gears.
“Yellen confirmed the majority view of the FOMC: Much more labor recovery is needed before the Fed raises policy rates,” said David Kotok of Cumberland Advisors.
- ECB prepared to act -
Draghi meanwhile responded to increasing pressure on the ECB to take more action as the eurozone economy stalls.
He said the ECB’s June rate cuts will help growth, but that the bank is poised to take further action.
“I am confident that the package of measures we announced in June will indeed provide the intended boost to demand, and we stand ready to adjust our policy stance further,” he said.
He said the ECB is preparing a program of bond purchases, like the Fed’s now-expiring quantitative easing program, saying “it should contribute to further credit easing.”
But he also urged eurozone leaders to moderate austerity measures, within eurozone rules, to enhance job creation.
“It would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy,” he said.
“There is leeway to achieve a more growth-friendly composition of fiscal policies,” while implementing needed structural reforms over the medium term.