ML-Implode News - Jobless Rate May Be a Flawed Indicator for Fed Policy (FED ECONOMIST INFIGHTING BRAKS OUT!)

Last year, Mr. Levin and Christopher J. Erceg, a Fed economist, published a paper concluding that a large part of the decline in the participation rate was a result of the recession and that by keeping monetary policy easy for a sustained period of time the Fed could get most of those people back into the labor force. Both Ms. Yellen, now the Fed chairwoman, and Stanley Fischer, the vice chairman, cited the paper in recent speeches.
But now a different group of Fed economists have published a paper that directly challenges the conclusions of the earlier paper. It is to be discussed Friday at a Brookings Institution conference in Washington.

"Our overall assessment is that much, but not all, of the decline in the labor force participation rate since 2007 is structural in nature," states the paper by Stephanie Aaronson, Tomaz Cajner, Bruce Fallick, Felix Galbis-Reig, Christopher Smith and William Wascher.

"As a result," they added, "while policy makers can view some of the current low level of the participation rate as indicative of labor market slack beyond that indicated by the unemployment rate alone, they should not expect the participation rate to show a substantial increase from current levels as labor market conditions continue to improve." Their model says the rate will continue to fall.

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Jobless Rate May Be a Flawed Indicator for Fed Policy (FED ECONOMIST INFIGHTING BRAKS OUT!)