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Bernanke Says Joblessness Unlikely to Fall Quickly


Federal Reserve Chairman Ben S. Bernanke said the U.S. recovery probably won’t quickly bring down the unemployment rate, which is likely to stay “high for a while.”

Given the depth of the recession, the recovery is “moderate paced,” Bernanke said last night in a question-and- answer session with Sam Donaldson, the ABC News journalist, in Washington. In Europe, policy makers “are committed to avoiding default in Greece” and elsewhere, he said.

While the Fed will raise interest rates from a record low before the economy returns to “full employment,” Bernanke said officials don’t know when that process will start. The banking system isn’t fully healthy and lenders are “cautious” in providing credit, he said.

“The unemployment rate is still going to be high for a while, and that means that a lot of people are going to be under financial stress,” Bernanke said at the event, part of a dinner hosted by the Woodrow Wilson International Center for Scholars.

Bernanke’s stance is consistent with that of several Fed colleagues. Atlanta Fed President Dennis Lockhart said June 3 that the central bank may need to raise rates even with “unacceptable levels of unemployment,” while Eric Rosengren of the Boston Fed said last month it wouldn’t be “appropriate” to have rates close to zero with the economy at full employment.

Kansas City Fed President Thomas Hoenig, the longest-serving Fed policy maker, is calling for an increase in the federal funds rate target to 1 percent even sooner, within a few months. Traders don’t expect the Fed to start raising rates until the first quarter of 2011, based on futures on the Chicago Board of Trade.

Toll on Americans

Last week, Bernanke said he’s concerned about the toll that joblessness is taking on Americans. U.S. companies hired fewer workers in May than forecast and workers dropped out of the labor force, a government report showed June 4.

Private payrolls rose by 41,000, trailing the 180,000 gain forecast by economists, while the jobless rate fell to 9.7 percent from 9.9 percent, according to the Labor Department report. Including government, employment rose by 431,000, boosted by a jump in hiring of temporary census workers.

The jobless rate, which fell to 9.7 percent last month from 9.9 percent, was 4.6 percent at the start of the financial crisis in August 2007.

At the Federal Open Market Committee meeting on April 27- 28, policy makers raised their U.S. growth estimates for 2010 and lowered forecasts for unemployment and inflation. Officials said the economy will expand in a range of 3.2 percent to 3.7 percent this year, and the jobless rate will average 9.1 percent to 9.5 percent in the fourth quarter.

Updated Projections

Bernanke and his colleagues will give updated economic projections when they next meet in Washington June 22-23.

The Fed chief reiterated yesterday that the central bank’s “extended period” of a record low interbank lending rate is conditioned on high unemployment, low inflation and stable price expectations.

“We have right now a very accommodative, very easy monetary policy,” Bernanke said. “We can’t wait until unemployment is where we’d like it to be” or inflation gets “out of control” to tighten credit, he said.

European finance ministers this week put the finishing touches on a rescue fund backed by 440 billion euros ($526 billion) in national guarantees, seeking to halt the spread of Greece’s debt crisis. The Fed last month restarted emergency currency-swap lines with central banks around the world.

Work to Be Done

“It’s a lot of money,” Bernanke said of the European plan. “It certainly covers the obligations of Greece and Portugal and Spain for a number of years.” He said “there still needs to be work done,” and “investors aren’t completely convinced” the problems are resolved.

Equities in the U.S. have dropped almost 14 since April 23, with investors battered by the widening debt crisis in Europe. The Standard & Poor’s 500 Index yesterday slumped to 1,050.47, the lowest level since Nov. 4. The euro fell below $1.19 for the first time since March 2006.

The U.S. and China have a “great deal” to gain from regular discussions, and officials in Beijing understand their “co-dependency” with the world’s largest developed economy, Bernanke said.

The U.S. Senate approved regulatory-overhaul legislation last month, setting up a conference with House lawmakers to reconcile it with a bill approved in December. Under both bills, designed to prevent a repeat of the crisis that prompted government bailouts of financial firms including American International Group Inc., the Fed would keep its authority to supervise banks and get the power to oversee other large, nonbank financial firms.

‘Sensible Approach’

Bernanke, 56, said the legislation represents “a pretty sensible approach and the many pieces fit together,” even after Dallas Fed President Richard Fisher and other colleagues criticized it for not doing enough to prevent further bailouts of financial firms.

The Fed chief said he wouldn’t support completely breaking off banks’ proprietary trading under the so-called Volcker rule. Even so, “as one of the regulators we’ll certainly work with our colleagues to try to make it operational” under the law, Bernanke said.