Federal Reserve Chairman Ben S. Bernanke, in two days of congressional testimony beginning today, will probably face questions on how he plans to end the worst jobs slump since the Great Depression.
Unemployment “will be a big topic” when the Fed chief faces the Senate Banking Committee, Senator Bob Menendez, a New Jersey Democrat and a panel member, said in an interview. “How do we help small- and mid-sized businesses, because they’re the ones who are going to create the jobs? What is he going to do and the Federal Reserve going to do to help grow this economy?”
Democratic leaders are pushing legislation to stimulate the job market amid concerns that unemployment will translate into losses in November elections. The Senate is scheduled to vote today on a $15 billion bill that provides a payroll tax holiday for hiring workers who have been jobless for at least 60 days.
Bernanke will deliver his semi-annual monetary policy report before the House Financial Services Committee at about 10 a.m. today. He plans to testify before the Senate Banking Committee tomorrow.
The U.S. unemployment rate will be 9.5 percent to 9.7 percent in the fourth quarter, compared with 9.7 percent in January, according to projections of Fed policy makers last month. After the last recession ended in November 2001, unemployment didn’t peak until 19 months later, in June 2003.
Fed Bank Presidents Janet Yellen of San Francisco and Dennis Lockhart of Atlanta said this month that economic growth probably won’t rapidly bring down the unemployment rate. More than 8 million jobs have been lost in the recession that started in December 2007.
‘Jobless Recovery’
“It sure looks like we are in the middle of a jobless recovery,” said Mark Gertler, a New York University economics professor. “Sluggish employment growth” after 2001 “in part reflected an unwinding of an extraordinary employment growth during the late 1990s. In the current recovery, credit market frictions and general uncertainty may be the main factor dampening hiring.”
The U.S. unemployment rate may average 9.1 percent in 2011 and 8 percent in 2012, according to economists surveyed this month by Bloomberg News.
Confidence among U.S. consumers fell in February to the lowest level in 10 months, a sign that concern about job prospects may hold back the spending needed to sustain the recovery. The Conference Board’s confidence index slumped to 46, below the lowest forecast in a Bloomberg News survey of economists, from 56.5 in January, a report from the New York- based private research group showed yesterday.
Repeat a Pledge
Bernanke is likely to repeat a pledge to keep the Fed’s target interest rate near zero for “an extended period,” said Gertler, who co-wrote research with Bernanke. The central bank may retain the pledge until “some signs of a significant pickup in employment growth.”
Central bankers last month restated their intention to cease buying $1.25 trillion of mortgage-backed securities at the end of March, and maintained their commitment to keep rates near zero for an “extended period.”
The U.S. economy will operate below its potential this year and next, Yellen said Feb. 22. “Even though the recession appears to be over, it does not mean that we are where we want to be,” she said.
Lockhart said Feb. 18 he is forecasting a “more gradual recovery with slow progress on unemployment.”
Manufacturing a Focus
Manufacturing jobs will be a focus for Senator Sherrod Brown, an Ohio Democrat and a member of the Senate Banking Committee.
“I want to hear Bernanke talk about how he’s going to rebuild American manufacturing,” Brown told reporters. “I look at this economy as more and more tilted to finance.”
“Finance should be a byproduct of growth,” he said. “That’s not helping our economy, that de-emphasis on manufacturing, emphasis on finance.”
Since World War II, the Fed has waited an average of six months after unemployment peaked to begin raising interest rates, and the central bank held off longer when inflation was low, Joseph LaVorgna, a Deutsche Bank Securities Inc. economist, said in a research note in November.
Source: Bloomberg.
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