FED PLAYS DOWN JOBS DATA
FED PLAYS DOWN JOBS DATA
2004-01-14 at 10:17:00 am #4655
Fed Plays Down Jobs Data
WASHINGTON (Reuters) – Top Federal Reserve officers said on Tuesday recent weak U.S. jobs data was no cause for alarm and inflation remained in check, backing a conviction that low U.S. interest rates are here for many months to come.
Economists said the Fed’s focus on slack in the economy and lack of price pressure showed policy-makers were in no hurry to raise interest rates from a 45-year low of 1 percent, or to cut them again either, despite job market gloom.
Fed Chairman Alan Greenspan told bankers in Berlin he was not surprised by the meager rise in December payrolls because productivity growth had been so strong. But he said the uptrend in hourly worker output had to fade and when it did, businesses would start hiring.
“This cannot go on indefinitely…it’s just a matter of time before we begin to see employment start to pick up quite significantly, as it always has in the past,” he said.
Just 1,000 jobs were created last month, data out on Friday showed, versus expectations of a 130,000 gain. Financial markets took fright at the news in case it was a warning that recent strong U.S. growth was not sustainable.
Dallas Federal Reserve President Robert McTeer told Bloomberg television he had shared that shock. But he added the Labor Department report did not mesh with other surveys that have signaled much stronger jobs growth than reported.
WAIT AND SEE
Fed Governor Mark Olson, speaking in Charlotte, North Carolina, voiced outright skepticism about the numbers, cautioning that they could have been influenced by seasonal factors and the Fed could afford to hold judgment.
“Particularly over the holiday season, there can be some noise in those numbers,” he said. “While the (December) numbers were a surprise to the downside, I would say let’s look at both December’s and January’s numbers before we draw a conclusion.”
Cleveland Federal Reserve chief Sandra Pianalto, speaking at Kent State University in Ohio, said the jobless nature of the recovery so far had been “puzzling” and might reflect a more fundamental shift in the U.S. economy as businesses worked out how to make the most of new technology.
In the face of this sort of doubt, she said policymakers needed more evidence to gauge what was going on.
“Uncertainty about whether and how the economy might be changing inevitably leads policymakers to look for supplemental indicators to help us understand how to best depict the economic environment,” she said.
Economists said this measured response reflected a Fed that felt it could take its time in assessing its next policy move.
“They are into their ‘considerable period’ and they can just afford to sit back and watch things develop,” said Stephen Stanley, senior markets economist at RBS Greenwich Capital Markets in Connecticut.
In August the Fed adopted the stance that it could keep rates low for a “considerable period” and Olson emphasized that this was because inflation was firmly under control.
“There is almost no sense of inflation pressure which is why we were led to believe that the phrase considerable period is still accurate,” Olson said.
“We are finding clear indications of economic recovery. But with both the output gap and the employment gap indicating slack in the economy we are not yet noting evidence of inflationary pressures,” he told the Charlotte Economics Club.
McTeer agreed the economy was in no danger of upward or downward price pressures.
“I think we’re in a sweet spot right now of price stability,” he said in a CNBC interview.