MNI POLICY:Fed's Daly: Gradual Hikes Needed at Full Employment

By Jean Yung

     WASHINGTON (MNI) - The U.S. economy at full employment with stable prices

calls for a gradual normalization of monetary policy, newly appointed Federal

Reserve Bank of San Francisco President Mary Daly said Monday. 

     In her first major speech as a voter on the Fed's interest rate settings,

Daly signaled that her thinking aligns with the core of the Federal Open Market

Committee, which sees inflation rising but contained and the labor market having

reached or exceeded maximum employment. 

     The unemployment rate and a broad range of other indications suggest that

the labor market has "reached or exceeded full employment," she said. Inflation

is "basically on target" and she expects it to rise to just above 2% over the

next year or so, Daly said. 

     "These conditions, with both of the Fed's goals essentially met, merit the

gradual normalization of monetary policy," she said in remarks prepared for

policymakers in Idaho Falls, Idaho. 

     However, the FOMC needs to stay vigilant to incoming data, she cautioned.

"The FOMC is not on autopilot, with quarterly rate increases locked in. We're

constantly looking at the data and adjusting the monetary policy path as needed

in response." 

     --LOW LABOR PARTICIPATION

     A labor economist by training, Daly also laid out a detailed argument for

why a lagging labor participation rate for prime age U.S. workers reflects

longer run challenges, rather than a labor market that has yet to fully recover

from the Great Recession. 

     In other advanced economies, participation has increased overall, whereas

in the United States, the prime-age rate remains significantly lower than it was

in the 1990s. Compared to Canada for example, the U.S. rate for workers age 25

to 54 is over 5 points lower in 2017, representing approximately 6.7 million

people who could be in the labor force. 

     In research to be published this week, Daly found that a difference in

female participation account for about 5 million of that total. Government

subsidies for child care and generous parental leave policies in Canada likely

encourage women to return to work after having children vis-a-vis the United

States, she noted. 

     While child care and educational policies are outside the purview of the

Fed, encouraging workforce participation will help boost the economy's longer

term growth potential, she said. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

[TOPICS: MMUFE$,M$U$$$]