When Fed chair Ben Bernanke threw out a 7 percent unemployment threshold for tapering asset purchases in June, markets went into a tizzy. At today’s press conference, he defended his decision to openly communicate the Federal Open Market Committee’s thinking, saying any unemployment target is meant as a threshold, not a trigger. But he remained much more vague — refraining from pinpointing another numerical target for tapering.
(He did suggest 6.5 percent unemployment was a good target for raising interest rates).
And he admitted that the Bureau of Labor Statistics’ official measure of unemployment, the “U3,” does not in itself give a complete picture of the labor market. Last month, he explained, the unemployment rate declined not so much because of new jobs added but because of a decline in labor force participation, from among other factors, older workers dropping out. (For more on the calculations behind unemployment, don’t miss Paul Solman’s U-7.)
“There is not any magic number that we are shooting for,” Bernanke said, reiterating that the FOMC is looking for overall improvement from a trio of objectives: increased growth, labor market gains, and inflation moving back toward their 2 percent ideal. “There’s no preset course,” but tapering could begin later this year, Bernanke said.
As Bernanke spoke, the markets soared — just the opposite of the turmoil unleashed by his reference to 7 percent unemployment three months earlier. Standard & Poor’s 500-share index, the Dow Jones and Nasdaq composite all closed about 20 percent higher Tuesday. “We try our best to communicate to markets. We’ll continue to do that. But we can’t let market expectations dictate our policy actions,” Bernanke said.