The US economy continues to improve, but the labor market is not yet strong enough for the Federal Reserve to end its stimulus programs, the president of the Federal Reserve Bank of Boston said Friday.
Eric S. Rosengren, speaking in Boston to a conference of New Hampshire and Vermont bankers, said that despite the steady decline in unemployment in recent months, the US economy remains far from achieving full employment, which he estimated as a jobless rate of 5.25 percent. He added that the official US unemployment rate, 6.1 percent, does not completely capture the lingering weakness in the labor market.
That rate does not include millions of Americans who have stopped looking for work and dropped out of the labor force, or those who are working part time because they can’t find full-time jobs.
“My primary message is that significant slack remains,” he said, “and thus monetary policy needs to be patient in removing stimulus.”
As the US economy has appeared to pick up steam in recent months, pressure has grown on the central bank to begin raising its benchmark short-term interest rate, which the central bank has held near zero since the end of 2008.
Interest rates are the main tools used by the Fed to manage the economy. When the economy is weak, the central bank cuts rates to encourage businesses and consumers to borrow and spend. When the economy is at risk of overheating and sparking inflation, the Fed raises rates to cool it off.
Rosengren, as he did Friday, has argued that the economy is far from the point where policy makers should worry about it overheating. Inflation remains below 2 percent while wages and salaries, a key driver of inflation, are growing quite slowly.
Slow wage growth is the result of a weak labor market: When there are more workers than jobs, employers do not have to pay as much to attract them.
Rosengren cited disappointing job growth in August as evidence that the economy still needs help. The Labor Department reported Friday that US employers added 142,000 jobs in August, far fewer than economists expected — and far fewer than the job gains in recent months. The nation added 212,000 jobs in July and 267,000 in June.
While the unemployment rate fell to 6.1 percent from 6.2 percent in July, Rosengren noted the decline appeared largely the result of more than 60,000 workers dropping out of the labor force.
“It seems to me appropriate for monetary policy to continue to be patient in the interest of ensuring that the economy reaches full employment . . . as quickly as possible,” he said.
Robert Gavin can be reached at firstname.lastname@example.org.