Federal Reserve Chairman Ben Bernanke today held the first press conference in the history of his position. Going into the conference, a number of people said that they’d like Bernanke to address whether the Fed could do more to reduce the country’s unemployment rate, which stands at an unacceptably high 8.8 percent.
The Fed’s own projections don’t have unemployment falling below five percent for five or six years and the Fed’s QE2 program, which was meant to juice the economy, has been a disappointment. So Bernanke was asked by the New York Times’ Binyamin Applebaum whether the Fed could be doing more to boost employment in the face of such dire projections.
But instead of answering the question, Bernanke simply explained the steps that the Fed has already taken to alleviate unemployment. His non-answer came even though he acknowledged earlier in the conference that the labor market in in bad shape and that the country has a “very, very deep hole” to dig out of in terms of job creation:
The pace of improvement is still quite slow and we are digging ourselves out of a very, very deep hole. We are still something like 7 million plus jobs below where we were before the crisis. And so clearly, the fact that we’re moving in the right direction, even though that’s encouraging, doesn’t mean that the labor market is in good shape. Obviously it’s not.
As the New York Times’ David Leonhardt wrote today, the Fed absolutely has options that it could employ to reduce unemployment:
It could announce that it would keep its benchmark rate at zero for a few years, which would probably hold down long-term rates. It could say that it was comfortable with higher inflation for a limited period of time, given how low inflation has been since 2007 and how high unemployment is. Above all, Mr. Bernanke could make clear that he considers years of widespread unemployment to be unacceptable.
Paul Krugman added that “[Bernanke's] own theories — and for that matter the doctrine endorsed by the Fed itself — says that the central bank should be doing much more quantitative easing, not stopping with the US still facing high unemployment and the unemployed themselves increasingly desperate.” Peterson Institute economist and former Federal Reserve staffer Joe Gagnon has released a plan calling for $2 trillion more in Fed easing to boost the economy.