BOSTON Feb 26 The recent drop in the U.S.
unemployment rate overstates the health of the labor market and
should not trigger any speedy reduction in the Federal Reserve's
super-easy monetary policy, a top Fed official said on
The high number of part-time workers who would rather work
full-time, the still-high unemployment rate, and very low
inflation suggest significant "slack" in labor markets and "call
for a very patient approach to removing monetary policy
accommodation, particularly given the softness in recent
economic data," Boston Federal Reserve Bank President Eric
Rosengren said in remarks prepared for delivery to the Boston
The Fed has kept short-term interest rates near zero for
more than five years, and bought trillions of dollars of
Treasuries and mortgage-backed securities to push down long-term
borrowing costs and encourage investment in hiring.
This past December, as signs of an improving labor market
began to take hold, Fed policymakers made the decision to begin
trimming their massive bond-buying program.
Rosengren dissented, and has since repeatedly voiced his
discomfort with removing monetary accommodation while the labor
market is weak and wage pressures are practically non-existent.
New Fed Chair Janet Yellen, who will chair her first
policy-setting meeting next month, has said she too sees a
"great deal of slack" in the labor market.
But she and the majority of Fed officials also have said
they support a continued reduction of the Fed's bond-buying
program, which now stands at $65 billion a month.
On Wednesday, Rosengren said that it has been difficult for
economists to determine whether weak employment reports for the
past two months have been influenced bad weather or if they
reflect an economic slowdown, and predicted that harsh winter
weather will make the February jobs report similarly difficult
"In my view, this uncertainty provides an additional strong
rationale for taking a patient approach to removing the monetary
policy accommodation that the Federal Reserve has been
The Fed has signaled it will keep rates low well after it
stops buying bonds, promising to keep short-term interest rates
low until well past the time the jobless rate falls to 6.5
In January, the rate fell to 6.6 percent, but employment
gains were far weaker than had been expected.
Indeed, Rosengren said, the U.S. economy will still have
significant labor market slack even after the unemployment rate
falls the 6.5 percent threshold. Low inflation, running well
below the Fed's 2-percent target, also suggests continued slack
in the economy, he said.
"As the unemployment rate falls and approaches the 6.5
percent threshold, the Federal Reserve needs to make an
assessment of the degree of remaining labor market slack as it
sets monetary policy," Rosengren said. "It is vitally important
that labor markets continue to improve. Monetary policy should
continue to be accommodative, supporting a return to full
employment, given the very low inflation rates."