Why Eric Rosengren highlights the underuse of US workers



Eric Rosengren

Eric Rosengren took office on July 23, 2007, as the 13th president and chief executive officer of the Federal Reserve Bank of Boston, serving the First District. Rosengren has a dovish stance on monetary policy.

U-6 Unemployment Rate

Rosengren’s views on monetary policy

According to Rosengren, monetary policy needs to place greater weight on broader measures of unemployment to capture labor market slack. Over 20 million Americans are either unemployed, marginally attached to the labor force, or working part-time when they would prefer full-time work. The currently measure of the unemployment rate doesn’t fully capture the current slack in the labor markets, according to Rosengren. Moreover, the subdued inflation level, at 1.1% personal consumption expenditure (or PCE) inflation, is quite reflective of the slack in the labor market.

Low inflation does provide flexibility to accommodate a more rapid improvement in labor markets by keeping short-term rates low. However, the policy stance should be patient until a stronger recovery ensues.

Comparing with the previous recovery

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Rosengren believes the current conditions of the labor market and inflation are quite different from the tightening in the previous recovery. On the occasion of the first tightening in the previous recovery on June 30, 2004, the unemployment rate stood at 5.6% while the PCE inflation was 2.8%. Under the current conditions, the unemployment rate is much higher, at 6.7%, while the PCE inflation rate is much lower, at 1.1%. The difference is manifested in the large pool of underused workers, which has a large impact on wages and prices and, consequently, the labor market at large.

Rosengren supports a highly accommodative monetary policy

According to Rosengren, normalization in labor markets requires economic growth to absorb this large pool of underutilized workers. He believes broader measures of labor markets are signaling a weak labor market, leading to persistently low price and wage growth. The broader unemployment measures are much higher currently than they were in the past. So monetary policy should focus more on these broader measures of unemployment.

Improvements in the labor market would boost consumer spending, all else equal. This would have a positive impact on consumer discretionary stocks. Investors can gain exposure to the sector by investing in ETFs like the SPDR Consumer Discretionary Select Sector ETF (XLY), the State Street SPDR S&P Retail ETF (XRT), and the VanEck Vectors Retail ETF (RTH). XLY includes the stocks of retailers like Nike (NKE) and YUM! Brands (YUM) among its holdings.

Rosengren stays put on his stance that with too much labor market slack and very low inflation rates, monetary policy should remain highly accommodative.

Let’s move on to discuss Atlanta Fed’s President Dennis P. Lockhart’s views and stance on monetary policy.


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