Fed Needs New Benchmark as Unemployment Nears 6.5 Percent
If there is one benchmark Americans recognize with respect to the economy and monetary policy, it’s the unemployment rate falling below 6.5 percent. From there, it was expected the Federal Reserve policy of bond buying known as quantitative easing would lighten, allowing interest rates to rise. After the latest job report showed improvments in the number of jobless yet weaker hiring volumes, economists expect that original benchmark will have to change to accommodate economic crosswinds.
Too much progress
Though there were mixed signals in the job report that appeared Friday, February 7, the unemployment rate fell to 6.6 percent. That figure equaled the lowest number of jobless Americans since October 2008 while giving rise to speculation it could drop to below the Fed’s threshold for changing monetary policy within months. When Ben Bernanke spoke about the Fed’s benchmark for unemployment in December 2012, The New York Times reported that central bank officials saw that happening at the end of 2015.
Little more than a year later, Bernanke’s successor has to grapple with the faster-than-expected fall in unemployment. New Fed Chair Janet Yellen was one of the supporters within the Fed of monetary policy tied to jobless rates rather than calendar dates. Now she is likely to call for a revision of that benchmark in light of discouraging economic data accompanying the good news on unemployment.
The bad news
Several elements of the February 8 jobs report suggested the recovery was being outpaced by the jobless rate. A gain of 113,000 jobs in January followed an even weaker December after an average of 194,000 jobs per month in 2013. However, the report also indicated that those who had given up on finding work had come out of the cold.