Fed policymakers say immigration key to leaving rut of slow growth
by Foster, on News
Two top U.S. central bankers jumped into the debate over immigration this week with surprising candor, with one calling for engagement in what he said would be “a horribly difficult debate” so as to ensure better economic growth.
Federal Reserve policymakers typically try to keep a low profile on political issues. But this year immigration is a particularly hot-button topic, with presumptive Democratic Presidential nominee Hillary Clinton calling for immigration reform and presumptive Republican nominee Donald Trump promising to build a wall on the Mexican border.
“If you believe the population is aging, and it is, and the (labor force) participation rate is going to decline further, and that’s going to create headwinds for the potential GDP, we can do some things about that,” Dallas Fed President Robert Kaplan said in Houston on Wednesday. “One thing is we could have immigration reform in the United States so that people can come here easily and we can continue to grow the workforce in a safe and secure way. And that will be a horribly difficult debate but we’ve got to have it.”
Speaking Tuesday evening in Marquette, Michigan, Minneapolis Fed President Neel Kashkari also said that continued immigration, along with productivity growth, are two critical avenues to a return to the faster growth that has eluded the United States despite years of extraordinary efforts by the Federal Reserve to boost the economy with low rates, bond purchases and other methods.
“My personal view is we should utilize immigration to our advantage as a source for economic growth,” said Kashkari. “If we have a population that’s not growing, it’s much, much harder to have economic growth.”
The willingness of both Kashkari, born to immigrants from India, and Kaplan, whose grandparents were also born abroad, to jump into such a politically charged issue underscores a growing concern among Fed officials over the limits of low U.S. interest rates to stimulate the domestic economy in the face of recurring headwinds from abroad, including a Europe whose already sluggish growth looks to be checked after Brexit, and slowing growth in China.
Fed officials increasingly believe the U.S. economy’s long-term growth potential may have fallen to around 2 percent, well below the historical norm, and many, including Fed Chair Janet Yellen, have lately suggested that only structural changes beyond the central bank’s purview can lift growth higher.