U.S. job market conditions remain weak despite three months of strong hiring, Federal Reserve Chairman Ben Bernanke said Monday. He warned that recent improvements in employment data seem to be "out of sync" with the overall pace of economic expansion.
Bernanke pointed to a wide range of indicators suggesting the job market has been improving. But he cautioned that conditions remain "far from normal."
"Further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies," Bernanke said Monday in remarks prepared for the annual conference of the National Association for Business Economics.
U.S. stocks opened higher as Bernanke's comments on the job market gave investors reason to believe interest rates will stay low. The central bank has held its benchmark interest rate near zero since December 2008. The Dow Jones Industrial Average rose 106 points in early trading. The broader S&P 500 gained 11 points and the tech-heavy Nasdaq advanced 25 points.
The economy has added an average of nearly 250,000 jobs over the past three months and the jobless rate remained high at 8.3 percent. Meanwhile, the number of people applying for initial unemployment benefits dropped to a four-year low of 348,000 last week, raising hope that hiring in March will also reach the 200,000 mark.
"We cannot yet be sure that the recent pace of improvement in the labor market will be sustained," Bernanke said, adding he was particularly concerned about the number people out of work for six months or longer.
Bernanke's concern over unemployment was echoed by other Fed officials.
In an interview with Bloomberg Television from Paris, Federal Reserve Bank of Philadelphia President Charles Plosser said the U.S. economy, while "doing better" and gaining some traction, is "not out of the woods."
However, he believes, at present, the Fed doesn't need for another round of quantitative easing, a potential bond-buying initiative that has been dubbed QE3.
In a separate speech in Paris, Plosser said the Fed shouldn't regularly use its balance sheet to affect monetary policy because doing so threatens its independence.
"The balance sheet of the Federal Reserve has changed from one made up almost entirely of short-term U.S. Treasury securities to one that is mostly long-term Treasurys, plus significant quantities of long-term mortgage-backed securities," Plosser said in his speech Monday.
"Our balance sheet should not be viewed as a new independent instrument of monetary policy in normal times," Plosser said. "Clear boundaries and resisting the use of the balance sheet as a new policy tool would also improve fiscal discipline by making it more difficult for the fiscal authorities to resort to the printing press as a solution to unsustainable budget policies."
Plosser isn't a voting member of the Fed's monetary policy-setting Federal Open Market Committee in 2012. He has been a consistent skeptic of the actions taken by the Fed in recent months.
SOURCE:IBTimes
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