San Francisco Fed President Mary Daly said the central bank should not be pleased with “full employment.”
In a speech Monday — only her second since becoming head of the reserve bank in September — Daly said unemployment measures appear to be “flashing bright green,” but saw an exception in low rates of labor force participation.
Although the U.S. economy has held steady at a low unemployment rate of 3.7%, Daly pointed out that labor force participation rates have declined since 2000.
“We shouldn’t think of ‘full employment’ as a fixed target, but instead think of it as something that can be moved,” Daly said. “From that perspective, there appears to be quite a bit of upside potential for U.S. workforce participation.”
Daly is not the first to point to the low labor force participation rate. In March, Fed Chair Jerome Powell made note of flattening labor force participation in the face of an aging workforce but pointed out that the trend has “surprised on the upside” as of late.
While Daly noted that the labor market is “booming,” she saw workers on the sidelines because of a mismatch in worker skills and the needs of a changing economy.
Daly said monetary policy cannot do much to fix this issue, and urged policymakers to expand access to college education and explore the economic benefits of expanding parental leave policies. Her argument: College degrees would better prepare workers for more advanced jobs and improved parental leave could boost women’s participation rates in the labor market.
Daly says she still sees the state of the economy as “very good” and supports the Fed’s gradual rate hikes, caveating that by saying policymakers are not promising anything.
“In other words, the FOMC is not on autopilot, with quarterly rate increases locked in,” Daly said. “We’re constantly looking at the data and adjusting the monetary policy path as needed in response.”
Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.