To: 2MAR$ who wrote (88420 ) 3/26/2012 10:08:22 AM From: elmatador Respond to of 217567 Bernanke "substantial portion of the decline in the unemployment rate does reflect genuine improvement in labour market conditions,” he said. Bernanke muted on US economic health By Robin Harding in Washington A rapid fall in US unemployment may not be sustainable unless the economy starts to grow faster, said Ben Bernanke in a speech on Monday that suggests monetary policy will stay easy. The US Federal Reserve chairman said that the decline in the unemployment rate from 9.1 per cent to 8.3 per cent over the past six months may reflect a one-off bounce back from big job cuts in 2008 and 2009. “To the extent that this reversal has been completed, further significant improvements in the unemployment rate will probably require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies,” said Mr Bernanke in a speech at the National Association of Business Economists conference in Arlington, Virginia. The Fed has been grappling with a divergence between stronger labour market data and weaker numbers on demand and output growth. Mr Bernanke’s explanation suggests that both phenomena are real but that the strength of the labour market will be temporary. If underlying growth is quite weak and there is still a lot of slack in the labour market then it makes sense for the Fed to continue with easy monetary policy in order to speed up the recovery. In January, the Fed said that it expected to keep rates exceptionally low until “late 2014”. Encouraged by the strong numbers on jobs growth, markets have started to doubt this pledge, but Mr Bernanke’s comments suggest that the Fed thinks it will need to continue support for the economy for some time. Mr Bernanke discussed two other possible reasons for the rapid fall in the unemployment rate. First, the data on gross domestic product may be wrong, with the economy growing much faster than it appears. But Mr Bernanke said that there is nothing in other measures, such as gross domestic incomes, to suggest that is true. Second, the fall in the unemployment rate may be because a lot of workers have permanently given up looking for work, but Mr Bernanke said there has also been a fall in people who are “marginally attached” to the labour force. “On balance, an assessment of a broad range of indicators suggests that a substantial portion of the decline in the unemployment rate does reflect genuine improvement in labour market conditions,” he said. Mr Bernanke said most unemployment is due to lack of demand rather than structural problems in the labour market, such as workers lacking the right skills, or being stuck in the wrong parts of the country. “Although structural shifts are no doubt important in the longer term, my reading of the research is that, at most, a modest portion of the recent sharp increase in long-term unemployment is due to persistent structural factors.” He pointed to a role for easy monetary policy in making sure that this demand-driven unemployment does not turn into a permanent structural problem. “Even if the primary cause of high long-term unemployment is insufficient aggregate demand, if progress in reducing unemployment is too slow, the long-term unemployed will see their skills and labour force attachment atrophy further, possibly converting a cyclical problem into a structural one,” Mr Bernanke said.