While the economy has improved and unemployment has declined, significant labor market slack remains and monetary policy must therefore be “patient” in removing accommodation, Boston Federal Reserve President Eric Rosengren said in remarks before a conference of Vermont and New Hampshire bankers last week.

“Critical to any decision on lifting short-term interest rates will be the matter of how much labor market slack exists currently, and how long before the economy reaches what we would consider to be full employment,” Rosengren said in his prepared remarks.

Speaking before the New Hampshire and Vermont Bankers Associations’ annual conference, Rosengren indicated he did not think it would be appropriate for the Fed to raise short-term rates until the U.S. economy is within a year of achieving full employment and within a narrow band around 2 percent inflation.

While some market observers have begun to fixate on potential calendar dates for when the Fed might raise short-term interest rates, Rosengren begged off that particular question and said he felt the Fed should no longer issue guidance on the approximate timing of monetary policy changes as the economy approaches what many would consider to be full employment.

Some forecasters expected a much more gradual improvement in the unemployment rate than has occurred – missing, in part, because the growth of the labor force has been so slow. It appears that some potential workers became discouraged with job prospects and withdrew from the labor force, while others never joined at all, Rosengren said.

With more potential workers in the labor force, the unemployment rate may come down more slowly than its recent trend – even if the pace of job creation continues as in the first half of this year.

Rosengren noted the importance of the broader measures of labor market conditions – measuring things like discouraged and marginally attached workers, who have stopped looking and those who are working only part time because full time work or schedules are not available.

“Inflation remains at only 1.6 percent, with no sign of significant wage pressures in labor markets. The lack of wage pressures suggests that we are not yet near full employment.”

As a consequence of all this, Rosengren considers it appropriate for monetary policy to be “patient” in removing accommodation, in the interest of ensuring that the economy reaches full employment and the 2 percent inflation target as quickly as possible.