Federal official warns low unemployment rates come with risks

  • In this Thursday, Nov. 2, 2017, photo, a recruiter from the postal service, right, speaks with an attendee of a job fair in Cheswick, Pa. On Thursday, Nov. 9, 2017, the Labor Department reports on the number of people who applied for unemployment benefits the week before. (AP Photo/Keith Srakocic) Keith Srakocic

Monitor staff
Saturday, November 18, 2017

The sea of “help wanted” signs visible across New Hampshire reflects a good-news situation – low unemployment – that has slightly worrisome undertones, a policy advisor from the Federal Reserve Bank told the Greater Concord Chamber of Commerce on Friday.

Pointing to a timeline that showed U.S. recessions superimposed on the unemployment rate, Jeffrey Fuhrer noted what happened when the jobless rate fell below a historical “sustainable” level of about 4½ percent for any length of time.

“Every time the rate spends any time below the sustainable rate and stays there, something bad happens – usually ... a recession,” he said.

The national unemployment rate has been hovering around 4.3 percent for much of the year. The jobless rate in New Hampshire is among the lowest of any state, at about 2.8 percent.

This is the main reason why the Fed is looking to slowly raise interest rates, Fuhrer said.

“We’re trying for that Goldilocks level” of inflation and unemployment – not too low, not too high, he said.

Fuhrer’s comments came during the chamber’s 2018 Economic Forecast Luncheon, and annual session designed to help members understand the larger forces shaping their businesses and industries.

The hour-long talk and question-and-answer session covered economic and fiscal issues at the national level, not regional or state level.

Among the questions that came up is whether historical models of interest rates have been altered by two large trends: high-wage Baby Boomers retiring and being replaced by lower-wage millennials, and “disruption” being seen in many industries from technology-driven upstart companies that have lowered costs so they can make profits without raising prices.

Fuhrer also touched gingerly on the possibility that lawmakers will change the federal tax code and the way reductions in the corporate tax rate could affect companies’ behavior.

He said that a tax cut that gave companies more profits might lead to more corporate investment, and thus more growth and hiring, but that result isn’t guaranteed.

“The level of corporate profit is not highly correlating with the amount of corporate spending,” he said, noting that companies are sitting on record levels of cash and uninvested assets, a situation that he described as “a little puzzling.”