WASHINGTON (Reuters) - Keeping monetary policy accommodative to draw even more people into the labor market risks encouraging firms to turn to automation more quickly, Cleveland Fed President Loretta Mester said on Thursday.
“Now (firms) they’re basically saying that it’s not really worth trying to hire of the pool that’s still out there because when they do bring them in, they don’t stay on staff more than a month...the response now is they’re going to start automating more,” Mester said during a panel discussion at the Brookings Institution in Washington.
“I am very sympathetic to getting to maximum employment, that’s certainly our goal. I think the policy tool we have in monetary policy isn’t really going to affect the overall labor market in the way you want to.”
She said increased automation would reduce labor demand.
The U.S. central bank cut interest rates for the first time in more than a decade in July and did so again at its subsequent policy meeting in September in what Chair Jerome Powell and some others have characterized as “insurance” against headwinds to the economy.
There is disagreement within the Fed’s policymaking committee on the need to lower borrowing costs. The benchmark overnight lending rate currently sits in a target range between 1.75% and 2.0%.
Mester, who was against the decision to cut rates in July, has said she is growing increasingly concerned by the impact on business investment and consumer spending of the Trump administration’s escalating trade war. She did not comment on Thursday on whether she was in agreement with the September decision.
Investors see a 90 percent probability the Fed will cut rates by another quarter percentage point at its next meeting at the end of October, according to an analysis of Fed funds futures contracts compiled by the CME Group.
Reporting by Lindsay Dunsmuir; Editing by Cynthia Osterman