A Closer Look

Fiscal policy, at both the federal and state and local levels: headwinds for unemployment reduction says Bernanke

The accommodative monetary policies I have reviewed today, both traditional and nontraditional, have provided important support to the economic recovery while helping to maintain price stability…

Notwithstanding these positive signs, the economic situation is obviously far from satisfactory… Further, the rate of improvement in the labor market has been painfully slow. I have noted on other occasions that the declines in unemployment we have seen would likely continue only if economic growth picked up to a rate above its longer-term trend.28 In fact, growth in recent quarters has been tepid, and so, not surprisingly, we have seen no net improvement in the unemployment rate since January. Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time.

In light of the policy actions the FOMC has taken to date, as well as the economy’s natural recovery mechanisms, we might have hoped for greater progress by now in returning to maximum employment. Some have taken the lack of progress as evidence that the financial crisis caused structural damage to the economy, rendering the current levels of unemployment impervious to additional monetary accommodation. However, … I see little evidence of substantial structural change in recent years.

Rather than attributing the slow recovery to longer-term structural factors, I see growth being held back currently by a number of headwinds. First, although the housing sector has shown signs of improvement, housing activity remains at low levels and is contributing much less to the recovery than would normally be expected at this stage of the cycle.

Second, fiscal policy, at both the federal and state and local levels, has become an important headwind for the pace of economic growth. Notwithstanding some recent improvement in tax revenues, state and local governments still face tight budget situations and continue to cut real spending and employment. Real purchases are also declining at the federal level. Uncertainties about fiscal policy, notably about the resolution of the so-called fiscal cliff and the lifting of the debt ceiling, are probably also restraining activity, although the magnitudes of these effects are hard to judge.30 It is critical that fiscal policymakers put in place a credible plan that sets the federal budget on a sustainable trajectory in the medium and longer runs. However, policymakers should take care to avoid a sharp near-term fiscal contraction that could endanger the recovery…

via FRB: Speech–Bernanke, Monetary Policy since the Onset of the Crisis–August 31, 2012.

Related articles

How many more jobs would we have if the public sector hadn’t been shedding jobs for the last three years?


The most glaring weakness in the current recovery relative to previous ones is the unprecedented public-sector job loss seen over the last three years. The figure below shows that private sector job growth in the current recovery is close to that of the recovery following the early 1990s recession and is substantially stronger than the … Continue reading »

US – Teacher Layoffs – A White House Report


The White House has released a new report that finds that the loss of teachers and other education staff is forcing communities into difficult choices that harm our children’s education and future, including increasing class sizes and shortening school years and days.  The report shows that more than 300,000 local education jobs have been lost … Continue reading »



  1. Pingback: Teacher Layoffs – Could Lead to Shortage « Job Market Monitor - September 11, 2012

  2. Pingback: FED / Lockhart / Aggressive Easing Needed For Jobs « Job Market Monitor - November 17, 2012

  3. Pingback: Fiscal Cliff / Unemployment Benefits will abruptly end for 2 million in dec., and nearly one million more in the first quarter of 2013 « Job Market Monitor - November 26, 2012

  4. Pingback: US / FED / Dallas Fed President, Richard Fisher, says Fed might set a target for unemployment « Job Market Monitor - November 27, 2012

  5. Pingback: US / For each dollar of federal highway grants received by a state, that state’s GSP rises by at least two dollars « Job Market Monitor - November 27, 2012

  6. Pingback: California / Fiscal Cliff / 400,000 long-term jobless on the edge « Job Market Monitor - November 28, 2012

  7. Pingback: US / Fiscal Cliff and Unemployment Insurance: four options to extend benefits and their costs « Job Market Monitor - November 28, 2012

  8. Pingback: Unemployment Insurance / Its Importance for American Families and the Economy « Job Market Monitor - December 4, 2012

  9. Pingback: Fiscal Cliff / UI Benefits will end for 3 M: A Brief Overview of the Legislative Procedures for Adjusting the Public Debt Limit « Job Market Monitor - December 5, 2012

  10. Pingback: US / Democrats want jobless benefits in Fiscal Cliff deal « Job Market Monitor - December 9, 2012

  11. Pingback: Fiscal Cliff / Focusing attention on partisan maneuvers « Job Market Monitor - December 11, 2012

  12. Pingback: FED / Targeting unemployment and inflation « Job Market Monitor - December 12, 2012

  13. Pingback: How to get to the 6.5% unemployment rate target: roughly 270,000 jobs each month « Job Market Monitor - December 14, 2012

  14. Pingback: The New Fed Unemployment Target: The story behind « Job Market Monitor - December 27, 2012

  15. Pingback: Bernanke / Fighting Unemployment Is A Better Cure Than Austerity | Job Market Monitor - May 23, 2013

  16. Pingback: The Fed and the Unemployment Rate / Fisher says he’s opposed to cutting the 6,5% threshold | Job Market Monitor - December 10, 2013

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Jobs – Offres d’emploi – US & Canada (Eng. & Fr.)

The Most Popular Job Search Tools

Even More Objectives Statements to customize

Cover Letters – Tools, Tips and Free Cover Letter Templates for Microsoft Office

Follow Job Market Monitor on WordPress.com

Enter your email address to follow this blog and receive notifications of new posts by email.

Follow Job Market Monitor via Twitter



%d bloggers like this: