Federal Reserve Bank of Richmond President Jeffrey Lacker said the two-year-old US recovery may be unusually slow as employers concerned about tax and regulatory policy minimise payrolls.
“This recovery may turn out to be qualitatively different from other recoveries,” Lacker said in remarks prepared for delivery today in Roanoke, Virginia. “One striking observation that may be relevant to the possibility that growth underperforms for a sustained period is the apparent reluctance of many employers to add workers in the face of rising demand.”
A string of weaker-than-expected reports on the US economy, including a rise in the unemployment rate to 9.1 per cent in May, has increased the odds the Fed will keep its benchmark interest rate near zero into next year. Chairman Ben S Bernanke said last week that “accommodative monetary policies are still needed” to boost a “frustratingly slow” recovery.
Fed officials are discussing how quickly to begin tightening after completing the purchase of $600 billion in US Treasuries this month. The Federal Open Market Committee (FOMC) next meets June 21-22 in Washington and Bernanke will hold his second press conference following the FOMC’s statement on June 22.
“As we talk with manufacturers across the Richmond Fed’s District, we are hearing again and again that manufacturers are determined to keep their head count down as much as possible, whether through increasing productivity or extending hours or just working harder,” Lacker said at a conference on manufacturing in the Southeast US hosted by Virginia Governor Bob McDonnell.
AFTER A CRISIS
History shows that recoveries take longer when they follow financial crises, according to the 2009 book “This Time Is Different: Eight Centuries of Financial Folly,” by economists Carmen Reinhart and Kenneth Rogoff. The authors traced similarities among crises in 66 countries dating back to medieval times, including government defaults, banking panics and inflationary surges.
More From This Section
“The recovery that began in the second half of 2009 has been patchy and has yet to produce a sustained period of above-trend growth,” Lacker said. “While 2010 ended with renewed strength in household spending, that strength abated early this year.
“Although the factors affecting the first quarter slowdown including high energy prices, bad weather and natural disasters around the globe may prove temporary, the inability so far of the expansion to gain more traction has been frustrating,” he said.
Lacker primarily focused in his speech on strategies to improve economic development and manufacturing, which has been a “bright spot” in the recovery. Investments in education and training can pay off in higher-skilled jobs, he said.
Lacker, 55, didn’t discuss the outlook for inflation or monetary policy in his prepared remarks. He dissented four times in 2006 in favor of higher interest rates. The Richmond Fed district includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia.