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Thursday, September 17, 2009

How Should Policymakers Respond to Inflation, Output, and (Lack of) Employment?

There is news on weekly jobless claims. Despite all the attempts to paint this as good news, the fall of 12,000 from the previous week is being highlighted in many places, 545,000 new claims is still very high and indicates that the recession is not yet over for workers:

Jobless Claims Decline, WSJ: Initial claims for jobless benefits fell 12,000 to 545,000 in the week ended Sept. 12...
The four-week average of new claims, which aims to smooth volatility in the data, fell by 8,750 to 563,000 from the previous week's revised figure of 571,750.
With claims still at a fairly high level, the data seems to reinforce the idea expressed earlier this week by U.S. Federal Reserve Chairman Ben Bernanke that the recession is most likely over from a technical standpoint but it will take time for the labor and credit markets to recover...
The ... number of continuing claims -- those drawn by workers for more than one week in the week ended Sept. 5 -- rose by 129,000 to 6,230,000 from the preceding week's revised level of 6,101,000.

Amid all the optimism that seems to be pervading the coverage of the economy, a mood that is being intentionally stoked by policymakers eager to rebuild confidence, we'll have to keep reminding everyone that workers still need help (I'm seeing more and more stories, for example, about unemployment benefits running out for some workers even as long-term unemployment continues to rise). As this picture from the SF Fed shows, the employment series does not yet display the "fishhook" shape shown in other series that are the source of the declarations that the worst is behind us. And as the experience of the last recession in the graph below shows, the trough in employment can be far behind the trough in output:

One more note on this. I was pleased to see McClatchy News at least asking the question in "Will Obama, Fed tolerate another jobless recovery?," so it's not completely off the radar and perhaps this will help to get the message to policymakers in congress. As for the Fed, as the futures market for the federal funds rate shows, markets believe rate hikes aren't far away indicating a belief among market participants that as output begins recovering, inflation worries will trump concerns about employment:

    Posted by on Thursday, September 17, 2009 at 11:10 AM in Economics, Fiscal Policy, Unemployment | Permalink  Comments (32)


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