Prospects for Growth and Labor Markets

Jeffrey Lacker

Speech from Federal Reserve Bank of Richmond

Abstract: GDP growth is likely to continue to average between 2 and 2 ½ percent. GDP growth is the sum of employment growth and productivity growth. Recent trends suggest neither component is likely to accelerate in the near future. Consumer spending and spending on residential construction also are unlikely to contribute to a pickup in GDP growth. The unemployment rate has declined significantly, although other measures suggest that the rate may understate the amount of “slack” in the labor market. Richmond Fed researchers have found, however, that the unemployment rate is an accurate gauge of labor underutilization. I believe the Fed’s efforts to normalize monetary policy must include the sale of mortgage-backed securities in order to reduce the Fed’s role in credit allocation. Tilting the flow of credit to certain borrowers is an inappropriate and unnecessary role for the central bank.

Date: 2014-10-09
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