Federal Reserve Chairman Ben Bernanke reiterated his concerns about high levels of US unemployment Tuesday, just days after a surprisingly large drop in the jobless rate caused cheer.
Projecting a sense that the central bank is not resting on its laurels -- even after unemployment dropped to 8.3 per cent, the lowest level in two years -- Bernanke said the market had improved only "modestly" over the last year.
"We have a long way to go before the labor market can be said to be operating normally,' Bernanke told the Senate Budget Committee.
"Particularly troubling is the unusually high level of long-term unemployment. More than 40 per cent of the unemployed have been out of work for at least ten months."
Bernanke sought to dodge a highly-charged political debate over the exact meaning of recent jobs data, which has been picked over by Republicans and Democrats as they look to November's general election.
But he appeared to agree with Republican assertions, echoed by presidential frontrunner Mitt Romney, that many more than the official figure of 12.8 million Americans are unemployed or underemployed, and that many people have stopped looking for a job all together.
But he also insisted that the overall picture was brightening and the country was moving toward the longer-run normal rate of unemployment of around 5.2 and 6.0 per cent.
Bernanke’s remarks indicate that his view that the labor market is a “long way” from returning to normal hasn’t changed since he used the same phrase when he testified to the House Budget Committee on Feb. 2.
“The 8.3 percent no doubt understates the weakness of the labor market in some broad sense,” Bernanke said today, while noting that some job indicators are improving.
Bernanke said the Fed’s forecast suggests the economy will grow fast enough to absorb new entrants into the workforce while “not making sharp improvements on the unemployment rate.”
Fed officials last month estimated that the world’s largest economy will grow 2.2 per cent to 2.7 per cent this year, according to the central tendency estimate, while the unemployment rate will average 8.2 per cent to 8.5 per cent in the fourth quarter.
While the jobless rate has dropped for five consecutive months, it remains above the 5.2 per cent to 6 per cent that Fed officials say is consistent with maximum employment. The percentage of the unemployed who have remained without work for 27 weeks or more rose to 42.9 per cent in January from 42.5 per cent in December, the Labor Department said.
Bernanke reiterated that the benchmark interest rate will probably stay near zero at least through late 2014, while saying the economy is vulnerable to shocks. The Federal Open Market Committee on Jan. 25 extended its horizon for low rates from an earlier date of at least mid-2013.
AFP with BLOOMBERG
