| JACKSON HOLE, Wyo
JACKSON HOLE, Wyo Aug 22 The Federal Reserve's
intensive focus on a wide range of labor market data to guide
policy-making is driving a wedge between its core
decision-makers and others who feel the central bank is straying
from traditional guideposts.
In a speech here on Friday, Fed Chair Janet Yellen gave her
most detailed analysis yet of what still plagues the American
labor market five years after the recession, from stagnant wages
to the large number of part-time workers to those who have given
up the search for work.
She concluded that, though hard to measure, there is still
considerable slack in the economy and the Fed should not rush to
tighten monetary policy until the picture becomes clearer.
But with broader measures showing strong improvement,
concern is building within the Fed that Yellen's novel use of a
broad range of jobs data is more distracting than informative.
At least two Federal Reserve regional presidents have called
on Yellen and other core policymakers - Vice Chair Stanley
Fischer and others who share a dovish tilt - to set aside the
range of jobs information and focus simply on job growth and
unemployment, which they say have proven reliable over the
"To come in with other indicators seems to me to be falling
outside the tradition of what we've done with monetary policy.
Non-farm payrolls and unemployment are probably the best
indicators," James Bullard, president of the St. Louis Reserve
Bank, said in an interview with Reuters. "These other things,
historically, have not been good for predicting what was going
to happen in the economy."
The unemployment rate in July ticked up 1/10th of a
percentage point to 6.2 percent. But it has fallen from 7.3
percent a year earlier and is closing in on the 5.5-percent
range that the Fed sees as sustainable. Job growth in July
topped 200,000 for a sixth straight month.
Bullard, who is not a voting member this year of the Fed's
policy-setting committee, cited the labor force participation
rate - the percentage of working-age Americans who are actually
working or want to work - as an indicator under intense
scrutiny, even though the Fed rarely cared much about it in the
Charles Plosser, head of the Philadelphia Fed and a voting
member this year, said Yellen's speech on Friday underscored the
issue of trying to solve labor market problems that the Fed
simply cannot fix.
"We've got ourselves tied up in a very difficult problem
because we focused so much on employment," he told Reuters.
"There is no literature, even theoretical, that tells us
that monetary policy can reduce the number of part-time people
employed for economic reasons," he added, mentioning one piece
of jobs data that Yellen often cites. "We're trying to get the
labor market to make all these changes at the margins, but we
don't know how to do it or whether it will work."
Plosser and Bullard are two of the handful of "hawks" on the
Fed's 17-member body. While their criticisms can be loud, a
quieter group of centrist policymakers, including five Fed
governors, often hold sway over the direction of policy.
Bullard stopped short of saying the issue over labor market
data was dividing the Fed, saying that discussion of the topic
was a "healthy debate".
"We love to argue about the data," he said, describing the
debate as appropriate.
But that the Fed is debating the issue is in itself
Typically, central bankers agreed which pieces of data to
focus on and then debated what policy should follow. Now it
seems the data is under the microscope as well.
"If you have variables you like, and think (they) predict
the economy, then you add another variable in there, what you're
going to find is that does not help you predict what has
happened in the last 50 years in the U.S. economy," Bullard
(Reporting by Michael Flaherty, Jonathan Spicer and Howard
Schneider; Editing by Leslie Adler)