ARLINGTON, Va. – Despite the recent pickup in job gains, Federal Reserve Chairman Ben S. Bernanke offered a cautious assessment of the labor market and suggested that he would press the Fed to continue or expand the central bank’s easy-money policies to ensure further improvements in the unemployment rate.
In a speech Monday at an economics conference, Bernanke maintained that conditions in the job market remain “far from normal,” with total hours of work and the number of people working still well below pre-recession levels. And once again, he expressed strong concerns about the millions of jobless people who have been out of work for more than six months.
But job gains have been solid the past three months, although Bernanke noted that the unexpectedly large drop in the jobless rate recently to 8.3 percent was “somewhat out of sync” with the slow pace of overall economic growth. The unemployment rate was 9.1 percent in August.
Bernanke offered one possible explanation for this disconnect: Employers slashed jobs during the recession well in excess of the decline in GDP, and now they may be taking reverse action to offset some of the heavy cutting earlier.
“What we may be seeing now is the flip side of the fear-driven layoffs that occurred during the worst part of the recession, as firms have become sufficiently confident to move their workforces into closer alignment with the expected demand for their products,” Bernanke said at the National Association for Business Economics conference in Arlington, Va.
Bernanke cautioned that for the unemployment rate to drop further, “a more-rapid expansion of production and demand from consumers and businesses” would probably be needed. And he said that argued for “continued accommodative policies” to support growth.
Diane Swonk, chief economist at Mesirow Financial in Chicago, said Bernanke’s speech essentially laid out the rationale for continuing or expanding monetary stimulus policies. The Fed has pledged to keep short-term interest rates close to zero until at least late 2014, but some policymakers at the Fed have called for a rate increase earlier, seeing an improving economy and inflation risks of extending monetary stimulus for too long.
“Bernanke made clear that the slack in the labor market is sufficient to sideline the inflation issue for the moment,” Swonk said in a note to clients. “(He) will continue to resist and override dissenters in his own ranks to keep and perhaps even expand monetary policy accommodation.”