Goal line on jobs still a long way off: former Fed economist Stockton

April 1, 2013

The Great Recession set the U.S. labor market so far back that there is still a long way to go before policymakers can claim victory and point to a true return to healthy conditions, a top former Fed economist said. The U.S. economy remains around 3 million jobs short of its pre-recession levels, and that’s without accounting for population growth.

“The goal line is still a long ways off,” David Stockton, former head of economic research at theU.S.central bank’s powerful Washington-based board, told an event sponsored by the Peterson Institute for International Economics. He sees the American economy improving this year, but believes the recovery will continue to have its ups and downs.

A lot of people have been quite excited about some of the recent strength in the labor market. It’s encouraging but I don’t think we’ve yet seen any clear break out and I don’t think we’re going to for a while.  […]

It’s just too soon to view this as signs that we’ve cleared had a turning point in the U.S. labor market.

In particular, he says the impact of recent belt tightening in Washington should not be underestimated:

It’s a pretty big hit, and we haven’t even begun to see the macroeconomics effects of the sequester. To think that amount of fiscal drag will not show through to economic activity is too optimistic.

Stockton, now at Macroeconomic Advisors, also does not see any reason to worry about inflation, which means Fed officials have plenty of room to maintain their aggressive bond-buying stimulus policies. “There just isn’t any inflation problem at present,” he said, pointing to stable inflation expectations. “I don’t think that’s going to be constraining the Fed anytime soon.”

“Monetary policy is going to be looser for longer than many people currently anticipate,” Stockton said.

To continue the sports analogy:

We’ve all seen those replays on TV of the football players streaking down the field and spiking the football thinking that he’s in the end zone only to find out that he’s fumbled it on the 10 yard line. The Fed isn’t going to make that mistake. I think they’re going to carry that ball across the goal line and they’re going turn around and look to double check that they’re in the end zone before in fact they put that football down. So I think we’re still looking at pretty accommodative policy.

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