US Federal Reserve Chairman Ben Bernanke said the US unemployment rate is likely to remain high “for some time,” even after the biggest two-month drop in the jobless rate since 1958.
Bernanke told the House of Representatives’ Budget Committee on Wednesday that while the declines in the jobless rate in December and last month “do provide some grounds for optimism,” he cautioned that “with output growth likely to be moderate for a while and with employers reportedly still reluctant to add to their payrolls, it will be several years before the unemployment rate has returned to a more normal level.”
Bernanke and the Federal Open Market Committee (FOMC) are waiting for more proof of a durable pickup in the job market as they press forward with their plan to buy US$600 billion in Treasury securities to boost the pace of recovery.
In its Jan. 26 statement, the panel said the recovery “has been insufficient to bring about a significant improvement in labor market conditions.”
The extent to which the recovery is established and inflation is pointing higher or lower will help determine whether the Fed expands or pulls back on the stimulus, Bernanke said in response to questions.
“If we’re still in a situation where the recovery does not seem established and deflation risk remains a concern, then we would have to think about additional measures,” Bernanke said.
If the economy grows “very quickly” and inflation keeps rising, then the Fed would have to reverse the purchases, he said.
If the recovery is sustainable and inflation is under control, then further action wouldn’t be needed, Bernanke said.
Policy makers “take very seriously” their commitment to review the program at each meeting, he said. The FOMC next meets on March 15.
Bernanke’s remarks, his first since a US Labor Department report on Feb. 4 showed the jobless rate unexpectedly fell to 9 percent last month, were similar to comments he made last week at the National Press Club and testimony last month to the Senate Budget Committee.
“Although the growth rate of economic activity appears likely to pick up this year, the -unemployment rate probably will remain elevated for some time,” Bernanke said in yesterday’s testimony.
Joblessness rose above 9 percent in May 2009, beginning the longest period of unemployment at that level or higher since monthly records began in 1948.
Last week’s Labor Department report also showed employers added 36,000 workers, short of the 146,000 median gain projected in a Bloomberg News survey of economists, as winter storms deterred hiring.
Since late last month Bernanke and his colleagues have expanded the focus of monetary policy beyond the jobless rate.
The Fed chairman said on Feb. 3 that he needs to see “a sustained period of stronger job creation” before he deems the recovery firmly established, a statement he repeated to the House.
On Nov. 3, the Federal Reserve said it would embark on a second round of asset purchases to help boost the recovery and achieve the Fed’s mandates.
Republicans on the panel challenged Bernanke on the effects of the stimulus.
The panel’s chairman, Representative Paul Ryan, reiterated his criticism of the Fed’s Treasury purchases, saying they risk asset-price bubbles and faster inflation.
Representative Scott Garrett, a Republican, pressed Bernanke to reconcile his positions that Fed monetary policy didn’t fuel a housing bubble last decade with the stance that the Fed could help home prices now with its asset purchases.