Fed Officials Tussle Over Labor Market Slack; Yellen Differs With Some Colleagues Over Effect on Inflation and Wages
Federal Reserve Chairwoman Janet Yellen has argued consistently in recent months that labor markets are abundant with slack that will hold inflation and wages down. But she hasn't convinced all her colleagues.</br></br>Minutes of the Fed's April 29-30 policy meeting showed a lengthy debate on this subject and suggested labor-market slack will become an important battleground in the central bank's coming discussions about how long to continue its low-interest-rate policies.</br></br>Many economists believe lots of slack in the labor market--large numbers of unemployed or underutilized workers--means the Fed can keep interest rates very low to help boost economic growth without generating high inflation. Conversely, they think that if there isn't much slack, or that it decreases rapidly, the central bank should raise rates more quickly to keep price pressures under control.</br></br>The unemployment rate fell to 6.3% in April, not far from its long-run average of 5.8%. Ms. Yellen has argued other measures--such as the nation's many part-time workers who want full-time work--represent slack holding wages down. While that view is broadly held at the Fed, the minutes showed she faced some pushback at the last meeting.</br></br>"Some participants reported that labor markets were tight in their districts or that contacts indicated some sectors or occupations were experiencing shortages of workers," the minutes said about the Fed's discussions, without identifying the participants by name or specifying the number holding certain views.