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In the Media | April 2014

Tarullo Says Fed Shouldn't Rush to Avert Any Wage Pressures

The Bond Buyer, April 11, 2014. All Rights Reserved.

Federal Reserve Governor Daniel Tarullo said the central bank shouldn't raise interest rates
"preemptively" on a belief the recession cut the supply of ready labor in the economy. "We should remain
attentive to evidence that labor markets have actually tightened to the point that there is demonstrable
inflationary pressure," Tarullo said today in remarks prepared for a speech in Washington. "We should not
rush to act preemptively in anticipation of such pressures based on arguments about the potential increase
in structural unemployment in recent years." Tarullo, the central bank's longest-serving governor, backed a
March 19 statement in which the Federal Open Market Committee said it will keep the main interest rate
below normal long-run levels while attempting to meet its mandate for full employment and stable prices.
In a wide-ranging speech, Tarullo cited slower productivity growth, the smaller share of national income
accruing to workers, rising inequality and decreasing economic mobility as "serious challenges" for the
U.S. economy. Monetary policy, by focusing on the full-employment component of the dual mandate, can
"provide a modest countervailing factor to income inequality trends by leading to higher wages at the
bottom rungs of the wage scale," Tarullo, 61, said at the 23rd Annual Hyman P. Minsky Conference in
Washington. The Fed governor rebuffed concerns about near-term inflation from wages, noting that even as
the unemployment rate has fallen to 6.7 percent in March from 7.5 percent in the same month a year earlier,
"one sees only the earliest signs of a much-needed, broader wage recovery." "Compensation increases have
been running at the historically low level of just over 2 percent annual rates since the onset of the Great
Recession, with concomitantly lower real wage gains," Tarullo said. The reasons for that lag in wage gains
are not clear, he said. "The issue of how much structural damage has been suffered by the labor market is of
less immediate concern today in shaping monetary policy than it might have been had we experienced a
period of rapid growth during the recovery," Tarullo said at the event, organized by the Levy Economics
Institute of Bard College in Annandale-on-Hudson, N.Y. 

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