Exclusive: Fed faces challenge of how to justify possible slowdown in jobs growth - Bullard

Thu Nov 5, 2015 8:22pm EST
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By Howard Schneider

ST. LOUIS (Reuters) - The Federal Reserve has been struggling to convince investors it is about to raise interest rates and now faces the risk that a likely slowdown in job growth will be interpreted as a downturn in the broader economy that will cause the Fed to hold off yet again, St. Louis Fed President James Bullard said on Thursday.

In an interview with Reuters, Bullard said U.S. central bankers may need to mount a new communications campaign to convince markets and the public of a counter-intuitive idea: that slowing monthly job growth is natural at this point in the recovery, and will allow the Fed to stay on track for a likely December rate hike.

Job growth averaging more than 200,000 per month during the recovery is unsustainable, Bullard said, estimating that growth of between 100,000 and 125,000 per month would be enough to account for an increasing population and a trend rate of economic growth.

"This is not Lake Wobegon. You cannot be above average all the time," Bullard said. “I don't think markets have absorbed this. Everyone has in their head 200,000...The natural expectation is for the pace of job growth to slow in the months and quarters ahead. We are expecting that to happen. It would be normal, and that would not indicate poor macroeconomic performance.”

The latest job numbers come out on Friday, and will be closely parsed for clues about how it might influence the Fed. A dip in September to growth of 140,000 jobs caused doubt about whether the Fed could follow through with its rate hike plans.

Bullard, speaking in a conference room at the St. Louis Fed, said explaining any downturn in jobs is one of several struggles the Fed may face not just in approving its "liftoff" rate hike, but in the longer battle to raise rates to a near-normal level.

It has been nearly a decade since the Fed last approved a rate increase, and Bullard said it is an open question how members will return to a meeting-by-meeting judgment of whether to move higher.

"The committee is not used to thinking in those terms because we have been at zero for so long. When is the next move and why? That will be a healthy debate," Bullard said.   Continued...

Federal Reserve Board Chair Janet Yellen  in Washington November 4, 2015.       REUTERS/Gary Cameron