The title of this speech is “We Can Do Better.” At the end of 2013, many observers were concerned that the Great Recession of 2007-09 had created a new downgraded baseline for U.S. labor markets. But, as I will show you, the United States experienced rapid improvement in labor market performance in 2014. There is no longer evidence that the American labor market is trapped in some kind of dismal “new normal” in the wake of the Great Recession.
In the absence of such evidence, I believe that policymakers should strive to facilitate ongoing improvement in labor market outcomes until they more closely resemble those that prevailed before the Great Recession. I use a series of charts to show that the process of improvement is likely to take some time. By some key metrics, the labor market improved more in 2014 than it had in almost 20 years. Yet, by these same metrics, we would need to see at least three more years like 2014 for labor market conditions to return to their 2006 levels. It follows that monetary policymakers should be extraordinarily patient about reducing the level of monetary accommodation.
This recommendation contrasts with the suggestion heard from others that the Federal Open Market Committee should begin to raise the target range for the fed funds rate (for short-term interbank loans) relatively soon. In the latter portion of my talk, I will discuss what I perceive to be the two main arguments supporting this alternative recommendation and why I do not find these arguments compelling. A key bottom line of this discussion is that I expect that it will take several years for the FOMC to achieve both its price and its employment objectives. In this sense, I do not perceive any tension between the two macroeconomic goals of the Committee.
via Minneapolis Fed