Fed on Employment: Well, Forget the Heavy Equipment

The other day I speculated that the Fed was paying less attention to employment than most marketeers seem to think. Specifically, I question whether the Fed will wait for an outright drop in unemployment before tightening monetary policy, or if other factors will be viewed as more important.

Today we’re getting four Fed speeches, which gives us a chance to see exactly how employment is characterized by the various Fed officials. So the following is the quote on employment from two of the four (Dallas Fed President Fisher doesn’t speak until tonight, and Boston Fed President Eric Rosengren made no mention of employment in his speech on the Too Big to Fail problem.)

Atlanta Fed President Dennis Lockhart:

At this juncture, it’s hard to be encouraged about a fast rebound in job growth. As you know, last week’s employment report pushed the official unemployment rate to 10.2 percent, the highest since May 1983. Net job losses continue on a monthly basis but at a declining pace. Because employment growth tends to lag recovery from a recession and because of factors such as small business credit constraints, my current outlook for employment is one of very slow net job gains once the trend reverses, in all likelihood sometime next year.

If you believe in “very slow net job gains” even once we start getting gains, the unemployment rate isn’t likely to fall at all for a long time. It could even rise if employment gains aren’t enough to make up for new entrants into the workforce. Still, Lockhart acknowledges that employment lags.

San Francisco Fed President Janet Yellen:

The U.S. experienced so-called jobless recoveries following the previous two recessions in 1991 and 2001, when job creation remained weak for several years following the business cycle trough. In both cases, output growth was less robust than in the typical recovery and, unfortunately, things seem to be shaping up similarly this time around.

Less verbose, but could be construed as the same basic view. Weak job growth “for several years.”

My question is, could the Fed hike to some number above zero even if unemployment is above 10%? Yellen and Lockhart are describing a situation where unemployment remains high for 2-3 years at least. What if at the end of 2011 unemployment is better, but still over 9%? I’ve got to think the Fed would have hiked.

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