Atlanta Fed president sees dangers in chasing vague labour market target

Dennis Lockhart, president and CEO of the Federal Reserve Bank of Atlanta, yesterday gave a speech in Knoxville, Tennessee, warning that the Federal Reserve's policy of continuing quantitative easing until it achieves "substantial improvement in the outlook for labour markets" risks incurring unforeseen costs in the pursuit of an aim that is difficult to define.

The speech draws on research by staff at the Atlanta Fed, which finds that leading indicators in the nation's labour markets are showing substantial improvement – but that other indicators, namely those measuring ‘labour utilisation', are proving harder to budge.

Lockhart suggests the more stubborn indicators may be unresponsive to monetary policy initiatives due to structural impediments, but that the Fed's policy-makers should also beware the danger that "if monetary policy is too timid, cyclical problems may become structural".

He concludes that the research presented suggests the state of overall employment conditions are "difficult to interpret" – adding that for this reason, "policy-makers should be seeking to carefully balance considerations of longer-term potential costs against the efficacy of policy designed to achieve ‘substantial improvement'."