Fed Chair Signals Possible Policy Shift on Unemployment

TRANSCRIPT:

JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore. And welcome to this edition of The Epstein Report.

Now joining us is Gerry Epstein. Gerry Epstein is the codirector of the Political Economy Research Institute and a professor of economics at UMass Amherst.

Thanks for joining us, Gerry.

PROF. GERALD EPSTEIN, CODIRECTOR, PERI: Thank you for having me.

DESVARIEUX: So, Gerry, last week, Janet Yellen, Fed chair, she had a conference and gave a speech at Jackson Hole, Wyoming. First of all, let us know what is the significance of this conference.

EPSTEIN: Well, every year, the Federal Reserve Bank of Kansas City has a conference in the gorgeous Grand Tetons in Jackson Hole, Wyoming, a wonderful place. Anybody can go therefore camping. And apparently years ago it was just this small, sleepy conference that nobody paid any attention to. Then it turns out that Paul Volcker, who was chair of the Fed in 1980, in the early 1980s, he loved to fly fish. So they got him to come out and give a speech so he could go flyfishing. And since that time it’s become kind of a big deal. Every year the central bankers come and give speeches. And increasingly, the last ten years or so, the world has been paying attention.

This year was a little different in several respects. Typically in the past the Federal Reserve has been inviting a lot of investment bankers and financial market economists to come and get inside information and hobnob with the glitterati, and it’s become a real kind of club-building exercise for the in crowd versus the out crowd. This year’s a little different. Janet Yellen and the Fed people didn’t invite so many investment bankers. Instead, they invited a bunch of labor economists, which was a big change.

DESVARIEUX: And what did she actually say?

EPSTEIN: Well, the topic of the conference was about the job market and what’s going on, why is unemployment still so high, what does it mean for monetary policy. And this is important in a number of respects. First of all, the Federal Reserve has a dual mandate. One of the objectives is supposed to be price stability. The others objective is supposed to be maximum employment. Now, central bankers at that Fed typically have kind of ignored the employment mandate and they haven’t paid all that much attention to it. But Janet Yellen has made this a big focus of her objectives. And so I think it’s significant that they devoted the entire conference to a discussion of what’s going on in the labor market. That’s very positive, and that’s something that I think central bankers in other parts of the world should pay attention to rather than just focusing entirely on price stability and low inflation.

DESVARIEUX: But, Gerry, if you had to be critical, would you say that she left out certain things? What didn’t she say, essentially?

EPSTEIN: Well, so I just told you what I thought the good news was, but there’s some bad news in what happened at this conference and in particular Janet Yellen was talking about. First of all, she reiterated that the central bank, the Federal Reserve, has a 2 percent inflation target. And the question arises, well, why 2 percent? Where did this number come from? It certainly wasn’t something that was determined by the government. It’s something that the Fed picked on its own. And how did they come up with 2 percent? Why not 3 percent or 4 percent or 5 percent? So she reiterated this 2 percent inflation target, which in my opinion is too low. And, of course, we’re not even reaching that high of an inflation rate yet, but it’s too low for what our economy needs to grow.

But second of all, in talking about the state of the unemployment, she gave very mixed signals. She was saying that, well, maybe we have all these structural factors in the economy that explain why unemployment is so high, and perhaps there’s not all that much more that monetary policy can do on its own to reduce unemployment. Now, to some extent there’s some truth to what she said. That is, there have been a lot of factors going on in the U.S. and the global economy in the last 15 or 20 years that has undermined the employment and wage picture for American workers. But instead of talking about a variety of tools and a variety of things that the central bank could do to try to address the employment problem, she basically said, well, it’s very complicated and we’re not sure where the picture’s taking us.

DESVARIEUX: What could they do, Gerry?

EPSTEIN: Well, when the financial crisis hit, the central bank, the Federal Reserve, created about ten to 15 new tools of policy to try to bail out the banks. And while it’s a very good thing that they devoted this conference and a lot of research to trying to figure out what’s going on with the labor market, they need to do a lot more research and devote a lot more attention into what other kinds of tools the central bank can use to generate more and better employment. So, for example, my colleagues here at PERI, Bob Pollin and others, have talked about loan guarantees, asset-based reserve requirements, various kinds of credit lines, and so forth for institutions that are trying to generate more and better jobs to create infrastructure, make the green transition to a fossil [fuel] free economy, and so forth. The Federal Reserve isn’t even talking about these kinds of expanded tools of monetary policy to deal with unemployment. They should do that just as they developed a whole bunch of new tools to deal with the financial crisis. So those are some examples, I think, of what Janet Yellen should have been talking about before going flyfishing at Jackson Hole.

DESVARIEUX: Alright. Gerry Epstein, joining us from Amherst, Massachusetts.

Thank you so much for being with us.

EPSTEIN: Thank you.

DESVARIEUX: And thank you for joining us on The Real News Network.