Fed. Head Bernanke Addresses Unemployment on the Hill
Thursday, October 01, 2009SUSIE GHARIB, NIGHTLY: A sharp sell-off in stocks on this first day of October as investors got the jitters about the nation's job picture and the economic recovery. The Dow tumbled 203 points and the NASDAQ fell almost 65 on worries about tomorrow's release of the September employment report. And in Washington, Ben Bernanke offered no comfort. Testifying on Capitol Hill, the Federal Reserve chairman told lawmakers that even if the economy grew at a pace of 3 percent, that wouldn't be enough to bring down the unemployment rate. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is the kind of concern you can expect to hear more often from members of Congress. The Federal Reserve's own forecast calls for unemployment of 9 percent next year. New Jersey's Leonard Lance asked Fed Chairman Ben Bernanke whether more could be done to put Americans back to work.
REP. LEONARD LANCE (R) NEW JERSEY: I can't imagine the American people will consider the country to be in recovery if the unemployment rate is at roughly 9 percent.
GERSH: The Fed chairman was not encouraging.
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: I don't have any magic bullets to offer. If I did, I would have offered them by now. One way to mitigate the long-term damage is to try to make sure that those who are out of work for an extended period, don't lose attachment to the labor force and that they do get opportunities to improve their skills and remain employable.
GERSH: With short-term interest rates near zero and a balance sheet north of $2 trillion, many economists agree the Fed has done all it can do. But Vince Reinhart, a former senior Fed staffer, thinks his old employer could go a bit further.
VINCENT REINHART, RESIDENT SCHOLAR, AMERICAN ENTERPRISE INSTITUTE: If the Federal Reserve kept the foot on the monetary accelerator at least for a time, then they probably could provide some more support to spending.
GERSH: Reinhart says the Fed has two options: delay its now-famous exit plans for a while or buy more long-term bonds to drive interest rates lower. That might support economic activity, boosting hiring. Of course, it might also spook investors who are worried about inflation. To calm those fears, Reinhart says the Fed could set a clear goal of keeping inflation low.
REINHART: That would probably help anchor longer term inflation expectations.
GERSH: Other analysts say any solutions will have to come from Congress. Economics writer Robert Kuttner says he is talking to the Obama administration about more support for state and local governments, hundreds of billions of dollars in additional stimulus spending and a tax credit for new job creation. Kuttner thinks the administration should aim to bring unemployment down to 8 percent next year and 6 or 7 percent in 2011.
ROBERT KUTTNER, CO-FOUNDER AND CO-EDITOR, THE AMERICAN PROSPECT (BY TELEPHONE): That would be acceptable. I think anything else than that -- anything worse than that is wasting human lives, wasting economic resources and the government can do better. The government ought to do better.
GERSH: The politics may be clearer than the economics. There's bipartisan agreement that high unemployment make voters very unhappy with people in office. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
