Narayana Kocherlakota — President of the Minneapolis Federal Reserve — gave a speech Tuesday that he said was meant to “underscore that monetary policymakers in 2013 are again confronted with a severe test,” a test defined by low employment and employment expectations. Kocherlakota notes that while things have improved since the “Great Recession,” the unemployment is still very high compared to the last twenty-five years.
In March of 2007, the unemployment rate was 4.4 percent, according to the Minneapolis Fed’s release of Kocherlakota’s talk, and that rose to 5.0 percent at the end of the year, then spiked to 10 percent in 2009 just after the recession ended. The unemployment rate now rests at 7.3 percent, but Kocherlakota notes that this is “far from healthy.”
“The current unemployment rate is also high relative to most forecasts of its expected long-run level, including those made by the Federal Open Market Committee,” said Kocherlakota, “But I would say that this measure — troubling as it is — overstates the improvement in the U.S. labor market.” Kocherlakota’s explanation for the misleading numbers is nothing if not depressing, as he explains that the measure of unemployment is the result of two questions asked by the Cencus Bureau — “Are you Working? And, if not, have you looked for work in the past four weeks?”
A decrease in unemployment can either be due to people finding the jobs they need, or it can be a result of people giving up the good fight and ceasing their employment search search. Demonstrating this unfortunate truth are the employment-to-population ratio results, which show that employment-to-population has barely risen from the 58 percent during the Recession.
Kocherlakota encouraged the FOMC to get the unemployment rate down as fast as possible, even if that meant momentarily sacrificing inflation, doing whatever is necessary. “Any perceptions of future FOMC ineffectiveness in generating favorable macroeconomic outcomes are hurting current employment,” Kocherlakota noted, emphasizing that belief in success in policy effectiveness is nearly as important as success itself.