Tarullo: Fed Shouldn’t Rush to Avert Any Wage Pressures

Money News, April 9, 2014. All Rights Reserved.

Federal Reserve Governor Daniel Tarullo said the central bank shouldn’t raise interest rates “preemptively” on a belief the recession cut the supply of ready labor in the economy.

“We should remain attentive to evidence that labor markets have actually tightened to the point that there is demonstrable inflationary pressure,” Tarullo said Wednesday in remarks prepared for a speech in Washington. “We should not rush to act preemptively in anticipation of such pressures based on arguments about the potential increase in structural unemployment in recent years.”

Tarullo, the central bank’s longest-serving governor, backed a March 19 statement in which the Federal Open Market Committee said it will keep the main interest rate below normal long-run levels while attempting to meet its mandate for full employment and stable prices.

In a wide-ranging speech, Tarullo cited slower productivity growth, the smaller share of national income accruing to workers, rising inequality and decreasing economic mobility as “serious challenges” for the U.S. economy.

Monetary policy, by focusing on the full-employment component of the dual mandate, can “provide a modest countervailing factor to income inequality trends by leading to higher wages at the bottom rungs of the wage scale,” Tarullo, 61, said at the 23rd Annual Hyman P. Minsky Conference in Washington.

The Fed governor rebuffed concerns about near-term inflation from wages, noting that even as the unemployment rate has fallen to 6.7 percent in March from 7.5 percent in the same month a year earlier, “one sees only the earliest signs of a much-needed, broader wage recovery.”

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