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Bernanke: Two Percentage Points in Unemployment Rate Due to Weak Economy

Fed chairman defends policy to lawmakers, says country "can attain an unemployment rate near 5 percent."

by
Rodrigo Sermeño

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July 18, 2013 - 1:18 pm
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WASHINGTON – In what could have been one of his last appearances before Congress, Federal Reserve Chairman Fed Bernanke told lawmakers Wednesday that a reduction in the central bank’s bond-buying program could still happen by the end of the year, depending on how the economy performs.

“Our asset purchases depend on economic and financial developments, but they are by no means on a preset course,” he told the House Financial Services Committee.

Bernanke’s testimony to Congress included the same information he had provided after the Fed’s meeting in June. In the plan the Fed chairman laid out in June, the U.S. central bank would likely reduce monthly bond buys later this year and stop them altogether by mid 2014, as the economic recovery continued its current pace.

He changed this message on Wednesday, saying the current level of purchases could be reduced more quickly if economic conditions improved faster than expected. But, he noted, the Fed’s asset purchases are by no means on a pre-determined course. And, he even suggested that the central bank could buy more bonds if the economy misses the Fed’s expectations for economic growth by next year.

“Our intention is to keep monetary policy accommodative,” Bernanke said.

“We’re going to be responding to the data. If the data are stronger than we expect, we’ll move more quickly” in reducing bond purchases while also keeping the interest-rate target low.
If the economy does not meet the Fed’s expectations, it could change those plans “or even potentially increase purchases for a time,” he said.

The Fed is currently spending $85 billion a month buying financial assets in the markets to lower long-term borrowing rates and bolster the economic recovery in the U.S.

Bernanke’s semi-annual monetary policy report may be his last if he steps down when his term as chairman of the Fed ends in January. Many lawmakers lauded him for his tenure at the helm of the central bank, and, in particular, his service during the economic crisis.

At the hearing, Bernanke reiterated his message that Congress should avoid any high-stakes standoffs in the upcoming debt limit negotiations.

“The risks remain that tight federal fiscal policy will restrain economic growth over the next few quarters by more than we currently expect, or that the debate concerning other fiscal policy issues, such as the status of the debt ceiling, will evolve in a way that could hamper the recovery. The more we can show we are working together the more confidence we can instill confidence in people,” he said.

Bernanke fielded many questions about different aspects of the economy, ranging from the new capital requirements to the housing market and unemployment.

He said about two percentage points of unemployment, currently at 7.6 percent, are related to weak demand in the economy. The rest, according to Bernanke, is structural unemployment – people without a job either because of a mismatch of the skills they possess with those required by the jobs available, or because they live far away from regions where jobs are available but are unable to relocate.

“We don’t see much evidence that the structural component of unemployment has increased very much during this period,” he said. People out of the labor force for a long time becoming unemployable has been a major concern for policymakers, but that does not seem to be a major problem, Bernanke said.

“It still appears to us that we, the country, can attain an unemployment rate near 5 percent,” he continued.

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All Comments   (12)
All Comments   (12)
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I can’t help but wonder if Bernanke actually believes what he says or is just slapping randomly occurring theoretical muses against the wall hoping against hope that something will stick.
38 weeks ago
38 weeks ago Link To Comment
..... clinging to arcane and obsolete early 20th century economic theory. Duct tape and bailing twine is no way to keep an economy running. Allow properly regulated free markets to do what they do best and the economy will take care of things just fine. That includes letting too-big-to-fail banks and cities go bankrupt.
38 weeks ago
38 weeks ago Link To Comment
Actually we are very close to full employment given the present policy mix. The only slack left is in residential construction which will eventually recover to the rate of household formation. People like Bernanke talk about a mysterious abstraction called aggregate demand as if government policy could put people to work by converting government bonds to bank deposits. This is nonsense as recent history shows. Bernanke is right about interest rates. They are low because there are no investment opportunities that can be funded through the financial markets. People are desperate to save and the economy can't put those savings to work. Bank deposits pile up earning nothing. Supply and demand to two sides of the same coin. Producing something of value to others creates a claim on what others produce for the things we want. This is the process that is paralyzed by government policy. Bernanke is right about fears for inflation. The Fed no longer has any meaningful control over any economically significant definition of money. They have been engaged in a futile effort to generate inflation for the last 5 years.
38 weeks ago
38 weeks ago Link To Comment
He said about two percentage points of unemployment, currently at 7.6 percent, are related to weak demand in the economy. The rest, according to Bernanke, is structural unemployment – people without a job either because of a mismatch of the skills they possess with those required by the jobs available, or because they live far away from regions where jobs are available but are unable to relocate.

To China?

I've got a grudging respect for Bernanke on most counts, but on this he is as clueless as Obama in a Christian church.

Accommodative, to whom? To the banksters, that's to whom.
38 weeks ago
38 weeks ago Link To Comment
[i]“It still appears to us that we, the country, can attain an unemployment rate near 5 percent,” he continued.[/i]

Getting the rate down will be one of the effects of Obamacare implementation.

Chase enough people out of the job market so they're no longer even counted, and the rate drops.
38 weeks ago
38 weeks ago Link To Comment
Really. The "new normal".
38 weeks ago
38 weeks ago Link To Comment
So when Obama's train wreck blows up the US economy, the Federal Reserve will be accommodating. So I guess our 401(k) retirement funds are ok then. That's a relief.
38 weeks ago
38 weeks ago Link To Comment
'...says country "can attain an unemployment rate near 5 percent."'

'Just shoot everyone whose unemployed', he continued, taking another out of turn hit before handing the bong to Greenspan.
38 weeks ago
38 weeks ago Link To Comment
The way people are dropping out of the workforce, and thus are no longer counted as unemployed, we may yet reach 5%. And just wait until the Amnesty happens and all that cheap, lower taxed labor becomes available.
38 weeks ago
38 weeks ago Link To Comment
Bernanke is a high priest of the economy, and like all high priests he is a fraud. He has no ability to do anything but harm the economy which he has done and continues to do. price controls distort the information prices convey. Price controls on money (low interest rates) distort the signals needed for any kind of investment and make long term planning impossible. Federal reserve delendum est
38 weeks ago
38 weeks ago Link To Comment
So keep importing Mayan peasants.
38 weeks ago
38 weeks ago Link To Comment
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