As Federal Reserve Chairman Ben Bernanke has been winding his way toward a confirmation vote on his reappointment, he has come under fire for his apparent willingness to “ignore, more or less, the fact that the unemployment rate in America is at 10% and is unlikely to return to normal levels for at least a half decade.”
Bernanke has said that lingering unemployment is “the most difficult problem that we face right now,” and he has also acknowledged that the Fed could undertake more quantitative easing, which former Federal Reserve staffer Joe Gagnon has estimated could bring the unemployment rate down by one to three points. But still, Bernanke is sitting on his hands.
According to the minutes of its latest meeting — which were released yesterday — the rest of the Federal Reserve board has similar expectations regarding the labor market:
The weakness in labor markets continued to be an important concern to meeting participants, who generally expected unemployment to remain elevated for quite some time…Moreover, the unusually large fraction of those individuals with jobs who were working part time for economic reasons, as well as the uncommonly low level of the average workweek, pointed to only a gradual decline in unemployment as the economic recovery proceeded.
But not all members are content to dither, as “a few” said that the Fed might need to “to provide more policy stimulus.” (Fed minutes do not reveal which member made a particular comment.) “On one side are FOMC members who are more worried about the high unemployment rate and less worried about inflation,” wrote Augustine Faucher, an analyst at Moody’s Economy.com. “They look at all of the excess capacity in the economy and state that this will keep inflation under control.”
Via Yglesias, Scott Sumner pointed out that Bernanke used to believe that the central bank can take action to boost growth, and even recommended that Japan take such action during the 1990’s. Now though, he isn’t advocating a similar course — even though there are members of his own board that feel it’s appropriate.
Bernanke has yet to explain his particular reasoning on this, and the one congressman who pressed him on it received a less than satisfactory response. But Bernanke has the tools available to mitigate the effects of extended high unemployment, and he needs to say why he’s hesitant to use them.