In a Washington Post story today describing how the Federal Reserve is addressing the nation’s economic woes, a photo caption it reads: “The Federal Reserve has set its sights on unemployment as the key to the recovery. The focus on jobs represents an historic shift for the central bank as it grapples with nearly four years of middling economic growth.”--WP
There are all sorts of issues that this analyst has about that characterization:
- First, “unemployment” is a problem symptom and not the problem.
- Second, the Federal Reserve is a long arm away from “job creation,” and not close to the problem.
- Third, what types of “jobs” does the nation need and who are most likely to create them?
The last question should be the first. Genius inventors of superior products and superior business enterprises also known as entrepreneurs are the primary sources of economic opportunity for capitalists and working persons. Primary sources include existing corporations and new enterprises.The nation is in critical need for an energy strategy, plans, schedules, and incentives to ignite the accelerated transformation of American life under a renewable energy paradigm. Doing that is a prerequisite to developing a sustainable economy.Given: Americans requires full employment in the optimum mix between the private sector and public sector employment that are driven by citizen consumer needs.
At present, the Federal Reserve can tweak policies to excite the existing paradigm, or join new leadership in addressing the primary needs of the nation with a more correct set of priorities.
“Fed shifts focus to jobs
Battling inflation vs. unemployment.The focus on jobs represents a historic shift for the central bank that began with the 2008 financial crisis and has intensified in the face of four years of middling economic growth. But how much influence the central bank wields over unemployment remains an open question: It cannot direct businesses to hire or inspire entrepreneurs to create jobs. Meanwhile, warnings have grown louder that the quest to bring down unemployment could have unintended consequences — including stoking inflation that a generation of central bankers worked to tame.
Yet there remains consensus inside the Fed that the gamble is worth it. There is even a sense that partisan gridlock on Capitol Hill means that the central bank alone is in a position to help put Americans back to work.
The high unemployment rate has “imposed huge burdens on all too many American households and represents a substantial social cost,” Fed Vice Chairman Janet L. Yellen said in a speech last week. “I believe it’s appropriate for progress in the labor market to take center stage in the conduct of monetary policy.”
The Fed officially is charged both with ensuring price stability and maximum employment — its “dual mandate.” But that’s not exactly how it has viewed its mission in the past.
Historically, inflation has been at the top of the Fed’s agenda. That’s partly because the Fed’s primary power is the ability to alter interest rates.
The effect that has on inflation has been well established: When prices rise too fast, the Fed raises its target for interest rates and slows down growth. When prices fall too low, it lowers the target to encourage consumers to spend money, driving prices back up.
Part of the challenge of focusing on the unemployment rate is first determining how low it can actually get. Fed officials’ estimates range between 5 and 6 percent, but the real number may be unknowable.
In addition, the connection between interest rates and employment gets a little murky. Low rates stimulate consumer demand and boost businesses’ bottom line. But the recovery has shown that doesn’t always translate into job growth. Many companies remain spooked by the recession and are not hiring new workers even though sales are up. And the Fed ultimately has no control over structural changes to the economy — such as the shift away from manufacturing to service jobs — that determine the unemployment rate in the long run.
The central bank’s role in propping up the labor market will be one of the defining debates inside the Fed over the next few years. Although Fed leadership remains committed to stimulating the economy until job growth picks up, that effort has taken it into uncharted policy waters, drawing both internal and external criticism.
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