RTTNews - Atlanta Federal Reserve Bank President Dennis Lockhart said Wednesday that although he believes the worst of the economic downturn has passed, economic recovery will be slow and will contribute to a protracted period of high unemployment.
Addressing members of the Chattanooga Area Chamber of Commerce, Lockhart said that the economy that emerges from the recession will not fully resemble the pre-recession economy and that some jobs might not be returned.
In my view, it is unlikely that we will see a return of jobs lost in certain sectors, such as manufacturing, he said in prepared remarks. 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.
Lockhart went on to say that the average manufacturing work week has fallen below 40 hours for the first time since 1983 and that the number of workers employed part time has increased more in the current recession than in any other.
He added that if the number of workers who have stopped looking for jobs after being discourages, or people who are working fewer hours than they want to are considered, the unemployment rate would jump from 9.4 percent to 16 percent.
Lockhart then suggested various solutions to the unemployment problem, such as labor market flexibility and an educational infrastructure well suited to retraining workers.
The Atlanta Fed President said that structural adjustment would occur faster if it were easier for workers to change employers and that community colleges could retrain non-traditional students for new careers by providing targeted training on a contract basis with private companies.
Lockhart was cautious in suggesting Fed policy solutions to unemployment, saying that interest rates should remain low and that the effects of a second stimulus package would add concerns to adding to the federal deficit, because the effects of the first stimulus package are not yet clear.
No policy is certain to improve outcomes, and no policy is without risks, he said. 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.
Lockhart concluded by saying that the Fed must deal with this tension to improve price stability and maximum employment.
I believe the overriding concern should be the quality of recovery as opposed to the speed of recovery, he said.
He added, I do not expect quick fixes for the unemployment challenge ahead, but I am convinced the right policy objective is sustainable employment growing out of a recovery that is grounded in durable and resilient fundamentals.
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