The U.S. labor market continues to be hampered by the fallout of the Great Recession, with millions of American workers sidelined, discouraged from the workplace or stuck in part-time or stagnant-waged jobs, Federal Reserve Chair Janet Yellen suggested Friday.
In a speech at a central banking conference in Jackson Hole, Wyoming, Yellen laid out in detail why she feels the unemployment rate alone is inadequate to evaluate the overall strength of the U.S. job market.
Joblessness has fallen faster than some had expected, she acknowledged. But the economic disruption of the last five years has still left its mark on the employment landscape, with a large chunk of workers dissatisfied by their prospects or settling for jobs that are not full-time or subject to weak pay growth — facts that are not captured in the unemployment rate alone.
The underlying concern requires monetary policymakers to move cautiously before opting for a rise in interest rates, Yellen suggested.
Outside the conference room — closed to all but the few dozen attendees from government, foreign central banks, academia and the media — a number of a demonstrators urging sustained Fed action to better the nation’s economic prospects gathered and attempted to engage with participants attending the meeting.
A handful of people in green “What Recovery?” t-shirts, organized by the Center for Popular Democracy, a group advocating for more government action to spur the economy, assembled to press for continue low interest rates.
According to the New York Times, Yellen responded to demonstrators before a dinner on Thursday night urging more action, saying: “We understand the issues you’re talking about and we’re doing everything we can.”
Kansas pastor and activist, Rueben Eckels, was one of those taking part in the Jackson Hole protests. He urged the Fed to “be doing much more to help vulnerable Americans achieve real economic security.” He told the Washington Post: “It’s time for the Fed to use its power on behalf of working people, instead of the wealthy elite.”
Inside, Yellen used her first address at the Jackson Hole confab to defend her policy approach.
Judging whether the economy is close to full employment is "complicated by ongoing shifts in the structure of the labor market and the possibility that the severe recession caused persistent changes in the labor market's functioning," Yellen said.
"Assessments of the degree of remaining slack in the labor market need to become more nuanced because of considerable uncertainty about the level of employment consistent with the Federal Reserve's dual mandate" of stable prices and full employment, she added.
In such an environment "there is no simple recipe for appropriate policy," Yellen said, arguing for a "pragmatic" approach that allows officials room to evaluate data as it arrives without committing to a preset policy path.
Yellen's speech included lengthy references to the possibility that labor markets may in fact be tighter then they seem, but that the Fed is facing increasing pressure to raise rates sooner and at a greater pace than expected.
But overall the remarks marked a defense of her basic premise that the 2007-2009 financial crisis and recession damaged the economy and workforce in ways that are not fully understood.
The Fed has held benchmark rates near zero since December 2008, and has said it would wait a "considerable time" after winding down a stimulative bond-buying program in October before raising them. Financial markets currently expect rates to raise around the middle of next year.
Yellen's comments came two days after the release of the minutes of the Fed's July 29-30 meeting. Those minutes showed that officials engaged in an intensifying debate over whether to raise rates sooner than expected if the economy keeps strengthening.
Some officials, the minutes said, thought the Fed would need "to call for a relatively prompt move" to begin raising short-term rates from record lows, where it has kept them since the financial crisis struck in 2008. Otherwise, they felt the Fed risked overshooting its targets for unemployment and inflation.
In the end, the Fed made no changes at the July meeting. It approved, 9-1, maintaining its current stance on rates. But the minutes pointed to a distinct division among officials over the timing of an increase.
That debate has continued at Jackson Hole, with Fed officials expressing clashing views during a series of TV interviews before the conference began with a reception and dinner Thursday night.
Charles Plosser, president of the Fed's Philadelphia regional bank, said he was uncomfortable with the Fed's current policy statement that it expects to keep its key short-term rate unchanged for a "considerable time" after its bond purchases end. Plosser cast the lone dissenting vote at the July meeting.
In an interview with CNBC, Plosser said he felt the Fed was "running a very risky policy" given the steady signs of strength in the economy.
"I would prefer to begin raising rates sooner and raise them more gradually," he said.
Esther George, president of the Kansas City Fed, which sponsors the Jackson Hole conference, said in an interview on the Fox Business Network that she also thought the Fed needed to "begin sooner rather than later" raising rates to give the economy time to adjust after a prolonged period of low rates. George, like Plosser, is viewed as a "hawk" — someone who thinks the Fed should be more concerned about avoiding high inflation than about continuing to try to boost the economy.
Al Jazeera and wire services