The Federal Reserve announced Wednesday that it will take unprecedented steps to bolster the economy, saying it will continue to stimulate growth until the unemployment rate falls to 6.5 percent or the inflation rate reaches 2.5 percent. The Fed said it did not expect unemployment to reach that benchmark until 2015.
It was a historic move that for the first time explicitly spells out the Fed’s goals for the nation’s economy and how it will respond to changing conditions.
The Fed says it will also begin buying $45 billion in Treasury bonds per month, on top of $40 billion per month it is already buying in mortgage bonds. The measures come as the nation braces for a possible recession if Congress and the White House do not reach a deal to avert a series of tax increases and major spending cuts set to go into effect at the end of the year.
The statement, coming after a two-day meeting of the Fed’s policy committee, amounts to a new commitment to trying to reduce unemployment. But it also shows that Fed officials remain concerned about the long-term prospects for the U.S. economy. The actions are likely to stimulate economic activity — because they suggest that the central bank will be boosting growth for at least two years — and markets jumped on the announcement. But stocks began losing gains by midafternoon, as Fed Chairman Ben S. Bernanke began his usual news conference after the Fed released its statement and economic projections. The Dow Jones industrial average was nearly flat by the end of the question-and-answer session at 3:30 p.m., and the Standard & Poor’s 500-stock index was up only 0.3 percent, dropping from a 0.7 percent high in the early afternoon.
Choosen excerpts by Job Market Monitor from
Dallas Fed President Richard Fisher, a top Federal Reserve official, said on Tuesday that his main concern now was unemployment, not inflation. He said another option the Fed might consider to signal its aims to markets was a target for unemployment, although this would be difficult because monetary policy alone was not responsible for creating jobs. … Continue reading »
Federal Reserve Bank of Atlanta President Dennis Lockhart said forceful central bank policies will remain needed to spur job growth even if Congress averts sudden tax increases and spending cuts at the end of the year. “I expect that continued aggressive use of balance sheet monetary tools will be appropriate and justified by economic conditions … Continue reading »
Federal Reserve Vice Chairman Janet Yellen backed a proposal to link the Fed’s zero interest-rate policy to progress toward meeting its goals for inflation and employment rather than to a calendar date. “The Committee might eliminate the calendar date entirely and replace it with guidance on the economic conditions that would need to prevail before … Continue reading »
Each month, The Hamilton Project examines the “jobs gap,” which is the number of jobs that the U.S. economy needs to create in order to return to pre-recession employment levels while absorbing the people who enter the labor force each month. As of September, our nation faces a gap of 11.1 million jobs, but the … Continue reading »
We face a 9 million jobs gap between the number of jobs we have and the number we need, and this doesn’t even address the low quality of the jobs being created. The chart below, taken from an Economic Policy Institute blog post, illustrates the gap. As Heidi Shierholz, the author of the post, explains: The … Continue reading »
The labor market has added nearly 5 million jobs since the post-Great Recession low in Feb. 2010. Because of the historic job loss of the Great Recession, however, the labor market still has 3.8 million fewer jobs than it had before the recession began in Dec. 2007. Furthermore, because the potential labor force grows as … Continue reading »
” The recovery is real, but it’s still really far from the recovery we need” writes Matthew O’Brien in The Scariest Jobs Chart, Private Sector Edition. (Choosen excerpts by JMM to follow) That’s been the consistent message of the past three years, with consistent job growth that hasn’t been near enough to end our jobs crisis much … Continue reading »
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 …Continue reading »