 An unemployed US citizen looks over job postings at a Nevada JobConnect career center in Las Vegas, Nevada, in this file photo. The US jobless rate has not fallen below 9.4 percent since May 2009. Bloomberg photo |
U.S. Federal Reserve officials signaled they will probably push ahead with unprecedented stimulus until the recovery strengthens and many of the 15 million unemployed Americans find work.
The jobless rate has not fallen below 9.4 percent since May 2009 and will probably average that figure this year, according to a Bloomberg News survey of economists. Unemployment probably declined to 9.7 percent last month from 9.8 percent in November, according to the average estimate of a Bloomberg poll prior to a Labor Department employment report on Jan. 7.
While growth has picked up since the Fed announced plans on Nov. 3 to buy $600 billion of bonds, policy makers remain focused on their failure to achieve their goals of full employment and an inflation rate of about 2 percent, according to the minutes of their Dec. 14 meeting released Tuesday.
The recovery’s pace is likely to “remain modest, with unemployment and inflation deviating from the committee’s objectives for some time,” the minutes said.
“Right now it looks like the unemployment rate is the whole ball of wax,” said Ward McCarthy, chief financial economist at Jefferies & Co. in New York. “The majority just wants to keep going full throttle, and keep policy as accommodative as possible.”
The Fed’s decision to embark on a second round of bond purchases in November, known as quantitative easing and dubbed QE2, sparked some of the bitterest political criticism in three decades. Republican lawmakers and officials in China, Germany and Brazil have said it may weaken the dollar and ignite inflation.
As stocks rise and the economy shows signs of improving, Fed Gov. Ben S. Bernanke and his colleagues are trying to explain their record easing to investors expecting a pullback. The Fed chief defended the central bank’s actions in an interview last month on CBS, while Janet Yellen, the central bank’s vice-chair, is leading a subcommittee to review communication strategy.
U.S. central bankers, while affirming their commitment to the asset-purchase program, acknowledged “the communications challenges faced in conducting effective policy, including the need to clearly convey the committee’s views while appropriately airing individual perspectives,” the minutes said.
Policy makers saw growth quicken since their last meeting, and “generally agreed that, even with the positive news received over the inter-meeting period, the most likely outcome was a gradual pickup in growth with slow progress toward maximum employment.” In addition, the “high level of unemployment was limiting gains in wages and thereby contributing to the low level of inflation,” the minutes said.
Financing made easier
Since the Fed announced its plans to buy $600 billion of bonds through June, financing terms for companies have eased, U.S. stocks have climbed, inflation expectations have increased and the dollar has gained 6.2 percent versus the euro.
The Standard & Poor’s 500 Index of stocks rose 6 percent during the period to close Tuesday at 1,270 and the extra yield, or spread, investors demand to own high-yield, high-risk securities rather than government debt fell to 5.27 percentage points from 5.92 on Nov. 3.
The improvements in the economy reinforce the Fed’s strategy and make it unlikely it will stop the asset-program before completing the planned $600 billion of purchases, according to Chris Low, chief economist at FTN Financial in New York.
“With the economy growing faster, the chances are they think it’s from QE and the last thing they will want to do is take that fuel away now,” Low said.
The Fed’s Open Market Committee “emphasized that the pace and overall size of the purchase program would be contingent on economic and financial developments,” according to the minutes. “However, some indicated that they had a fairly high threshold for making changes to the program,” the minutes added.
“They’re specifically saying they have a very high threshold for shrinking it,” Low said. “I don’t think we’ll know until the second quarter” whether they’ll want to increase the asset purchases.
U.S. policy makers saw downside risks to growth including further weakness in the housing industry, the “ongoing deterioration” in the finances of U.S. states and localities, and the potential worsening of the sovereign debt crisis in Europe, the minutes showed.
The Fed’s quantitative easing program has led inflation expectations to increase. Investors expect prices to rise by 2.3 percent annually over the next 10 years, as measured by the spread between nominal and inflation-indexed Treasury bonds.
The jobless rate has not fallen below 9.4 percent since May 2009 and will probably average that figure this year, according to a Bloomberg News survey of economists. Unemployment probably declined to 9.7 percent last month from 9.8 percent in November, according to the average estimate of a Bloomberg poll prior to a Labor Department employment report on Jan. 7.
While growth has picked up since the Fed announced plans on Nov. 3 to buy $600 billion of bonds, policy makers remain focused on their failure to achieve their goals of full employment and an inflation rate of about 2 percent, according to the minutes of their Dec. 14 meeting released Tuesday.
The recovery’s pace is likely to “remain modest, with unemployment and inflation deviating from the committee’s objectives for some time,” the minutes said.
“Right now it looks like the unemployment rate is the whole ball of wax,” said Ward McCarthy, chief financial economist at Jefferies & Co. in New York. “The majority just wants to keep going full throttle, and keep policy as accommodative as possible.”
The Fed’s decision to embark on a second round of bond purchases in November, known as quantitative easing and dubbed QE2, sparked some of the bitterest political criticism in three decades. Republican lawmakers and officials in China, Germany and Brazil have said it may weaken the dollar and ignite inflation.
As stocks rise and the economy shows signs of improving, Fed Gov. Ben S. Bernanke and his colleagues are trying to explain their record easing to investors expecting a pullback. The Fed chief defended the central bank’s actions in an interview last month on CBS, while Janet Yellen, the central bank’s vice-chair, is leading a subcommittee to review communication strategy.
U.S. central bankers, while affirming their commitment to the asset-purchase program, acknowledged “the communications challenges faced in conducting effective policy, including the need to clearly convey the committee’s views while appropriately airing individual perspectives,” the minutes said.
Policy makers saw growth quicken since their last meeting, and “generally agreed that, even with the positive news received over the inter-meeting period, the most likely outcome was a gradual pickup in growth with slow progress toward maximum employment.” In addition, the “high level of unemployment was limiting gains in wages and thereby contributing to the low level of inflation,” the minutes said.
Financing made easier
Since the Fed announced its plans to buy $600 billion of bonds through June, financing terms for companies have eased, U.S. stocks have climbed, inflation expectations have increased and the dollar has gained 6.2 percent versus the euro.
The Standard & Poor’s 500 Index of stocks rose 6 percent during the period to close Tuesday at 1,270 and the extra yield, or spread, investors demand to own high-yield, high-risk securities rather than government debt fell to 5.27 percentage points from 5.92 on Nov. 3.
The improvements in the economy reinforce the Fed’s strategy and make it unlikely it will stop the asset-program before completing the planned $600 billion of purchases, according to Chris Low, chief economist at FTN Financial in New York.
“With the economy growing faster, the chances are they think it’s from QE and the last thing they will want to do is take that fuel away now,” Low said.
The Fed’s Open Market Committee “emphasized that the pace and overall size of the purchase program would be contingent on economic and financial developments,” according to the minutes. “However, some indicated that they had a fairly high threshold for making changes to the program,” the minutes added.
“They’re specifically saying they have a very high threshold for shrinking it,” Low said. “I don’t think we’ll know until the second quarter” whether they’ll want to increase the asset purchases.
U.S. policy makers saw downside risks to growth including further weakness in the housing industry, the “ongoing deterioration” in the finances of U.S. states and localities, and the potential worsening of the sovereign debt crisis in Europe, the minutes showed.
The Fed’s quantitative easing program has led inflation expectations to increase. Investors expect prices to rise by 2.3 percent annually over the next 10 years, as measured by the spread between nominal and inflation-indexed Treasury bonds.
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