Meyer Sees No Return to ‘Full’ Employment Until 2015
The U.S. won’t see a return to “full” employment for another six years, helping to hold down inflation, according to former Federal Reserve Governor Laurence Meyer.
“I think there’s going to be a long legacy of the financial crisis and the deep recession,” Meyer said in an interview today on Bloomberg Radio. Meyer, who served at the Fed from 1996 to 2002, is vice chairman of St. Louis-based Macroeconomic Advisers LLC.
Meyer’s comments echo those of observers including Mohamed El-Erian, the Pacific Investment Management Co. chief executive officer, who foresee an extended period of elevated unemployment. That would follow a decade that is already on course to be the weakest for economic growth in the postwar era.
The economy is “a very, very long way off” from its potential growth rate, Meyer said. While the expansion will probably be “modestly above trend next year” and “significantly above trend in 2011,” that won’t help restore the nation to a “normal” job-market, he said.
“Full” employment — or a jobless rate around 5 percent — won’t return until 2015, he said.
“We’re staring in a hole; we’re going to start from a 10 percent unemployment rate,” Meyer said. “The unemployment rate is going to come down very slowly.”
Inflation Call
A weak labor market “brings with it a significant decline in inflation,” below 1 percent next year, and near zero in 2011, Meyer predicted.
“That’s particularly important for the call when the FOMC is likely to exit from a near-zero rate policy,” he said guaranteed payday loans. The consumer price index fell 1.4 percent from a year earlier in June, the weakest performance since January 1950.
In an effort to prevent a depression, the Fed’s Open Market Committee reduced its benchmark interest rate to near zero last year, and has more than doubled the size of its balance sheet in the past year to more than $2 trillion.
U.S. joblessness has increased to 9.5 percent, the highest in more than a quarter century, from an average of 5.3 percent during the six-year economic expansion that ended when the recession began in December 2007. Fed officials’ projections suggest the rate could reach as high as 10.1 percent by the end of this year.
Meyer said that the jobless rate will probably be 9.5 percent to 10 percent by the end of 2010, and 8.5 percent by the end of 2011, Meyer said. “That’s still very high,” he said. “That’s the defining feature of the outlook going forward.”
Employers in the U.S. have cut 6.5 million jobs since the recession began, the most since the end of World War II. GDP contracted at a 5.5 percent annual rate in the first quarter, capping the weakest six-month performance in half a century.
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