VOL. 127 | NO. 60 | Tuesday, March 27, 2012
Bernanke Calls US Job Market Weak Despite Big Hiring Gains
By MARTIN CRUTSINGER
WASHINGTON (AP) – Federal Reserve Chairman Ben Bernanke says the U.S. job market remains weak despite three months of strong hiring, but that the Fed’s existing policies will help boost economic growth.
Bernanke’s comments Monday, March 27, to a group of economists in Arlington, Va., drove stocks higher. Many took his cautious words about the economy to mean the Fed is likely to stick to its plan to hold short-term interest rates at record lows through 2014.
Though the job gains have helped support consumer confidence and incomes, “we have not seen that in a persuasive way yet,” Bernanke said. The Fed needs to “remain cautious” in deciding what its next moves should be, he said.
Further job gains will likely require stronger consumer and business demand, Bernanke said in a speech to the National Association for Business Economics spring conference.
After Bernanke spoke, the Dow Jones industrial average rose more than 110 points in midday trading. Broader indexes also gained.
The surge in hiring since December had led some economists to predict that the Fed might consider raising rates earlier than planned. But many took Bernanke’s cautious tone as a firmer commitment to the late-2014 timetable.
And some viewed the speech as a signal that the Fed might take further steps, if the economy falters, to try to further drive down long-term borrowing rates. The goal would be to encourage more spending by consumers and businesses.
Robert Dye, chief economist at Dallas-based Comerica bank, said the Fed might extend a program of shuffling its investment portfolio to shift more of its holdings into long-term Treasurys. That could help lower long-term rates. Or the Fed could launch another round of bond-buying.
“The chairman is very much keeping additional monetary policy options on the table,” said Robert Dye, chief economist at Dallas-based Comerica Bank.
Employers added an average of 245,000 jobs a month from December through February. The unemployment rate has fallen nearly a full percentage point since summer, to 8.3 percent.
Still, the economy grew at an annual pace of just 3 percent in the October-December quarter. And economists think growth has slowed in the January-March quarter to around a 2 percent annual rate.
Bernanke said the combination of modest economic growth and rapid declines in unemployment is something of a puzzle. Normally, it takes growth of roughly 4 percent annual growth to lower the rate by 1 percentage point over a year.
He offered some reasons for the unexpected decline in unemployment. Employers may be hiring rapidly because they cut too many jobs during the recession. He also said that government revisions may later show stronger economic growth over the past year.
But Bernanke cautioned that he doesn’t expect the unemployment rate to keep falling at its current pace without much stronger growth. He also noted that the rate is still roughly 3 percentage points higher than its average over the 20 years preceding the recession.
“Despite the recent improvement, the job market remains far from normal,” Bernanke said. “The number of people working and total hours worked are still significantly below pre-crisis peaks.”
The Fed is concerned that the recovery could falter. Americans aren’t seeing big pay increases. Gas prices are high. And Europe’s debt crisis could weigh on the U.S. economy.
As long as inflation remains tame, analysts think the Fed will likely hold interest rates down to give the economy more support. Most economists don’t think Fed officials will change their interest-rate policy at their April 24-25 meeting.
AP Economics Writer Christopher S. Rugaber contributed to this report.
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