This morning Ben Bernanke addressed the House Budget Committee regarding the Federal Reserve’s economic outlook for the near future. Bernanke said that declines in the unemployment rate in December and January “provide some grounds for optimism”, it “will be several years before the unemployment rate has returned to a more normal level.” In its FOMC statement in January, the Fed said that the recovery “has been insufficient to bring about a significant improvement in labor market conditions.”
Unemployment first broke above 9 percent in the spring of 2009, and has remained above that level since then. Although unemployment declined from 9.8 percent in November, to 9.4 percent in December, to 9.0 percent in January, the labor force participation rate is now at 64.2 percent, the lowest level in about 25 years. If this number were to be normalized at about 66%, which is the long term average participation rate, unemployment would be at 11.7%! Although weird things often happen with the January employment reports, as near as I can tell, the improvement in the labor market is largely illusory.
Bernanke reiterated that “although the growth rate of economic activity appears likely to pick up this year, the unemployment rate will remain elevated for some time.”
The Federal Reserve appears to remain committed to its controversial second round of quantitative easing (QE2), which some fear could cause inflation down the road. The Fed Chief commented: “my colleagues and I have said that we will review the asset purchase program regularly in light of incoming information and will adjust it as needed to promote maximum employment and stable prices.”
It seems as though the QE2 program has mostly been successful in driving up stock prices. Since its inception we have seen neither large scale job creation, or lower interest rates.
Loading ...
RSS feed for comments on this post.
Leave a comment