By Suzanne Cosgrove
CHICAGO (MaceNews) – Chicago Fed President Charles Evans Thursday said the Fed is continuing to review measures of its dual goals of price stability and maximum employment as part of an examination of its policy framework begun late last year.
“One of the key questions facing us today is whether the economy is currently operating at its maximum level of employment,” Evans said in prepared remarks that kicked off a Chicago Federal Reserve Bank conference on workers and their communities.
“Certainly, the national unemployment rate is very low by historical standards,” he acknowledged, “and at 3 ½ percent, it is below most estimates of the so-called natural rate of unemployment – the unemployment rate at which the economy can operate on a sustained basis without the buildup of unwelcome inflationary forces.”
Estimates of the natural rate generally tend to be about 4 percent or slightly higher, he noted. But Evans added, “we’re very conscious of how uncertain those estimates remain. … while something a little greater than 4 percent might be the best assessment given our limited data, we know the actual number might be somewhat higher or somewhat lower.”
“Wage growth has remained quite moderate, even though we’ve been below conventional estimates of the natural rate for some time, Evans said. “This suggests that, at a minimum, unemployment is not so far below its natural rate that overly high inflation is an urgent threat. Indeed, inflation has been persistently below our 2 percent target over just about the whole time that we’ve had that formal target. “
“This leads me to think that the Fed should continue to cautiously probe for the true level of maximum employment,” he said. That is, we shouldn’t treat a statistical estimate of the natural rate as a hard barrier that automatically signals an impending problem,” he said.
“Of course, we should also be mindful of the possibility that unwelcome inflationary imbalances could yet emerge. We need to keep both possibilities in mind. “