February 16, 2018

Economist: Low unemployment rate unsustainable

Jeffrey Fuhrer, executive vice president and senior policy advisor at the Federal Reserve Bank.

At the Economic Forecast Forum on Friday in Worcester, the senior policy advisor for the Federal Reserve Bank in Boston said the national unemployment rate is unsustainably low, possibly leading to another recession.

The Massachusetts unemployment rate is 3.1 percent, and it is 3.2 percent in Worcester County, as measured for December by the state Executive Office of Labor & Workforce Development. Nationally, the unemployment rate is 4.1 percent.

At the Worcester event Friday held by the WBJ and Worcester Regional Chamber of Commerce, Jeffrey Fuhrer, executive vice president and senior policy advisor at the Federal Reserve Bank in Boston, said those rates are below what his agency considers sustainable, preferring unemployment to be between 4.4 and 4.9 percent.

Looking at the 70-year trend of unemployment rates in the U.S., Fuhrer said when unemployment dipped below what the Fed considers sustainable, it led to national economic recession.

The Fed is trying to counteract this trend by raising interest rates, Fuhrer said.

The national economy has been in recovery for the nine years since the Great Recession ended in the second quarter of 2009, and the Fed would like to see that continue, Fuhrer said.

"We want the recovery to last 12-13 years and beyond," he said.

Despite the change in the leadership at the Federal Reserve, Fuhrer said businesses should expect the agency's monetary and regulatory policies to remain constant. Trump Administration appointee Jay Powell has become the new Fed chairman, replacing Janet Yellen, who led the agency from 2014-2018.

Fuhrer said Powell is a centrist and a sensible leader who listens.

Lastly, Fuhrer warned against getting too excited about companies announcing new jobs, raises, bonuses and expansions due to the Republican-backed tax law changes, saying those plans were likely in place beforehand as it is too early for the cost savings to be realized. Fuhrer said he was hopeful the tax cuts for businesses would lead to job and salary growth.

CORRECTION: A previous version of this story incorrectly said the Federal Reserve saw sustainable unemployment rates as around 5-6 percent. The correct figure is 4.4-4.9 percent.


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