Federal Reserve Chairman Ben S. Bernanke said the U.S. is facing a crisis with a jobless rate at or above 9 percent since April 2009, and that fiscal discipline would help spur the economic recovery.
“This unemployment situation we have, the jobs situation, is really a national crisis,” Bernanke said in response to questions after a speech yesterday in Cleveland. “We’ve had close to 10 percent unemployment now for a number of years and, of the people who are unemployed, about 45 percent have been unemployed for six months or more. This is unheard of.”
The chairman is contending with the most opposition on the Federal Open Market Committee in almost 19 years, with three policy makers opposing the central bank’s decision last week to push down longer-term interest rates. Fed regional bank presidents Thomas Hoenig of Kansas City and Richard Fisher of Dallas spoke out against the plan this week, while Eric Rosengren of Boston backed it and Dennis Lockhart of Atlanta said the move will probably have a “modest” effect.
The speech was Bernanke’s first since the Fed announced on Sept. 21 that it would replace $400 billion of short-term debt in its portfolio with longer-term Treasuries in an effort to further reduce borrowing costs and strengthen the flagging economy. U.S. growth has stalled even as the Fed purchased $2.3 trillion in assets in two rounds of quantitative easing and held interest rates near zero since December 2008.
“Monetary policy is not a panacea,” Bernanke said. “There are certainly some areas where other policy makers could contribute,” and “strong housing policies to help the housing markets recover would certainly be useful.”
The Standard & Poor’s 500 Index of stocks fell 2.1 percent yesterday to 1,151.06 in New York trading, while yields on 10-year Treasury notes rose 1 basis point, or 0.01 percentage point, to 1.97 percent.
The U.S. should learn from the success of many emerging market economies and support strong economic growth through “disciplined fiscal policies,” Bernanke said in his speech yesterday. He didn’t address the outlook for the U.S. economy or monetary policy in his remarks on “Lessons from Emerging Market Economies on the Sources of Sustained Growth.”
The experience of emerging markets shows “the need to encourage private capital formation while undertaking necessary public investments,” Bernanke said. He also cited open trade, investment in education, technological advances and a regulatory framework that “encourages entrepreneurship and innovation while maintaining financial stability.”
Set of Guidelines
Bernanke’s speech reviewed the recommendations of John Williamson, an economist and senior fellow at the Peterson Institute for International Economics, a set of guidelines known as the Washington Consensus.
During the U.S. recession from December 2007 to June 2009, the BRIC nations of Brazil, Russia, India and China became the engines of the global economy, with Chinese gross domestic product expanding 7.9 percent even as the U.S. was still contracting.
While emerging countries produced about 85 percent of global economic growth since then, China, India and Brazil are slowing after they lifted interest rates to curb inflation following at least $870 billion of fiscal stimulus during the financial crisis.
“Over time, as the emerging market countries become wealthier and technologically more sophisticated, they will gradually lose the advantages of starting from behind,” Bernanke said.
Both emerging markets and advanced economies will have to “do their part” to reduce global imbalances, Bernanke said.