Paging Dr. Faber Dr. Grant Dr. Faber

Dennis P. Lockhart
President and Chief Executive Officer
Federal Reserve Bank of Atlanta
August 26

The views I will express today are mine alone and do not necessarily reflect those of my colleagues on the Federal Open Market Committee (FOMC).

...As regards inflation, with continuing economic weakness and financial uncertainty, firms have very little pricing power. Headline inflation has fallen in part because of lower oil prices compared with a year ago. Core measures of inflation excluding food and energy costs also have been drifting lower. Looking ahead, I expect inflation will remain contained. (Until it isn't in a big way.-AM)

With respect to growth, my forecast envisions a return to positive but subdued gross domestic product (GDP) growth over the medium term weighed down by significant adjustments to our economy. Some of these adjustments are transitional in the sense that they impede the usual forces of recovery. Among these are the rewiring of the financial sector and the need for households to save more to repair their balance sheets.

Some of these adjustments, however, are more "structural" in nature. By this, I mean that the economy that emerges from this recession may not fully resemble the prerecession economy. In my view, it is unlikely that we will see a return of jobs lost in certain sectors, such as manufacturing. In a similar vein, the recession has been so deep in construction that a reallocation of workers is likely to happen—even if not permanent. I'll discuss manufacturing and construction a bit more in a moment.

This recession has had a severe impact on employment in various ways: jobs, furloughs, and number of hours worked. For example, the average manufacturing workweek has fallen below 40 hours for the first time since 1983. And the number of workers employed part-time for economic reasons has increased more in this recession than in any since the Bureau of Labor Statistics (BLS) started tracking that information.

If one considers the people who would like a job but have stopped looking—so-called discouraged workers—and those who are working fewer hours than they want, the unemployment rate would move from the official 9.4 percent to 16 percent.


The higher share of part-time employment arguably gives employers a means to increase work hours without adding to the overall number of full-time workers. Businesses seem inclined to defer hiring and focus on productivity until a sustained pick-up in top-line demand is beyond doubt.

Firms always have incentives to improve efficiency and keep a lid on costs—including labor costs. The last two recoveries have involved unusually long periods of GDP growth accomplished through productivity gains instead of employment growth. At this point, there is scant evidence that the coming recovery will break that pattern.

( Controlling the means of production by controlling the meaning of production. -AM)

If my prognosis for the broad economy is correct, the pace of job restoration and growth through the medium term will be frustratingly slow. So, what can be done to address the prospect of high unemployment and underemployment? (Jobless recovery is an oxymoron. -AM)

Further fiscal stimulus has been mentioned, but the full effects of the first stimulus package are not yet clear, and the concern over adding to the federal deficit and the resulting national debt is warranted.

The FOMC has stated its intention to keep the policy interest rate low for an extended period. I agree that this approach is needed. This policy stance should encourage more business activity and facilitate more hiring.

No policy is certain to improve outcomes, and no policy is without risks. The challenge my colleagues and I face is navigating between the risk that early removal of monetary stimulus snuffs out the recovery and the risk that protracted monetary accommodation stokes inflation expectations that could ultimately fuel unwelcome inflationary pressures. (Paging Dr. Faber, Dr. Grant, Dr. Faber. -AM)