Fed members see high unemployment as long-term worry

Last Updated: Thursday, January 7, 2010 - 14:00

Washington: Federal Reserve members expressed concern at a policy meeting last month that unemployment would "remain elevated for quite some time," and limit economic growth, minutes released on Wednesday showed.

The minutes from the December 15-16 Federal Open Market Committee showed a range of economic views from central bank policymakers and staff but persistent worries on joblessness and how it may impact the recovery from recession.

"The weakness in labor markets continued to be an important concern to meeting participants, who generally expected unemployment to remain elevated for quite some time," the minutes showed.

"Although the November employment report was considerably better than anticipated, several participants observed that more than one good report would be needed to provide convincing evidence of recovery in the labor market."

The report on November unemployment showed job losses narrowed to 11,000, offering hope of a return to growth in the ailing labor market, as the unemployment rate dipped slightly to 10.0 percent.

But Fed members "noted that the slowing pace of employment declines mainly reflected a diminished pace of layoffs; few firms were hiring," the minutes stated.
"Moreover, the unusually large fraction of those individuals with jobs who were working part time for economic reasons, as well as the uncommonly low level of the average workweek, pointed to only a gradual decline in unemployment as the economic recovery proceeded."

The minutes stated that "the prognosis for labor markets remained an important factor in the outlook for consumer spending," which is the main driver of US economic activity.

"Uncertain job prospects, modest growth in real incomes, tight credit, and wealth levels that remained relatively low despite this year`s rise in equity prices and stabilization in house prices were seen as likely to weigh on consumer confidence and the growth of consumer spending for some time to come," the minutes said.

Against this backdrop, "a few members" suggested that the central bank might might need "to provide more policy stimulus" by expanding the planned asset purchases, which some call quantitative easing, to pump more money into the financial system.

By contrast, one member saw "improvement in financial market conditions" enough to warrant a pullback in Fed asset purchases.
The Fed staff report presented to members meanwhile "suggested that the recovery in economic activity was gaining momentum," the minutes said.

It noted that "the pace of job losses slowed noticeably in recent months, and total hours worked increased in November" even though the unemployment rate "remained quite elevated."

The staff review noted that industrial production "sustained the broad-based expansion that began in the third quarter," and that consumer spending "increased at a solid pace in October."

At the December meeting, the central bank extended its record low interest rates and reaffirmed this policy would remain in place "for an extended period" to support a still-precarious economic recovery.

The Fed maintained the federal funds base rate of a range of zero to 0.25 percent, which has been in place for the past year under a plan to revive economic activity.

The panel headed by chairman Ben Bernanke did acknowledge some improvement in economic conditions, notably in the troubled labor market, but indicated this was not enough to shift away from a massive stimulus effort.

Bureau Report

First Published: Thursday, January 7, 2010 - 14:00

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