Business
US Unemployment Rate Worries Bank Chief
The U.S. economy needs to grow more quickly to bring the unemployment rate down further, Federal Reserve Chairman Ben Bernanke said on Monday, defending the central bank’s policy of very low interest rates.
While he offered no indication the Fed is keen to embark on a third round of bond purchases, Bernanke also made clear the central bank is in no rush to reverse course after responding aggressively to a deep recession.
The jobless rate has dropped to 8.3 percent from 9.1 percent last summer, a move Bernanke said was “somewhat out of sync” with the rather modest pace of economic growth.
He said the decline could reflect an effort by businesses to recalibrate their payrolls after unusually heavy job cuts during the recession. If this is the case, he said, progress may stall.
“To the extent that this reversal has been complete, 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 told the National Association for Business Economics.
U.S. stocks climbed on hopes that Bernanke’s speech could be a precursor to more Fed bond purchases, with each of the major indexes up at least 1 percent. The dollar fell against the euro, but prices for U.S. government debt also slipped as worries about Europe’s debt crisis eased, sapping a safe-haven bid.
The U.S. central bank lowered overnight interest rates to near zero in December 2008 and has bought $2.3 trillion in debt securities to drive other borrowing costs lower in an effort to spur faster growth and cut unemployment.
“Reading between the lines, it sounds like he’s pushing the ball forward toward having a discussion about doing more,” said Chris Rupkey, economist at Bank of Tokyo-Mitsubishi, on the sidelines of the NABE conference.
After its last two meetings, the Fed said it would likely keep rates near zero at least through late 2014, but upbeat economic signs, including solid employment growth, have led investors to bet on a move as early as the middle of next year.
Bernanke’s speech appeared aimed at pushing back against those expectations.
U.S. gross domestic product grew 3 percent in the fourth quarter, but is expected to have slowed to just below 2 percent in the first three months of this year. For all of last year, it grew only 1.7 percent, which would normally be too slow to move the unemployment rate lower.
Sluggish economic demand has kept alive the potential for more Fed bond purchases, despite the signs of improvement in the labor market.
The policy does have detractors, including some inside the central bank. Philadelphia Federal Reserve Bank President Charles Plosser on Monday said central banks should not have unfettered ability to purchase assets because that violates the traditional separation of monetary and fiscal policymaking and can allow governments to inflate away debts.
“Granting vast amounts of discretion to our central banks in the expectation that they can cure our economic ills or substitute for our lack of fiscal discipline is a dangerous road to follow,” Plosser told a conference in Paris.
That discomfort and differences over the outlook for the economy have led to an unusually wide range of views among policymakers over the proper course.
While a few officials are pushing for a further easing of monetary policy and some think rates might not need to rise until 2016, a hawkish minority believe the Fed would do well to reverse course this year. Bernanke is likely in the middle, biding his time to determine whether more bond purchases are needed but resolute in his thinking that any rate hikes can wait until 2014, analysts say.
The Fed chief reiterated his concern about long-term unemployment, which he said could cause workers’ skills to atrophy, but he argued against the notion that much of the problem was due to shifts in the economy that had made workers’ skills obsolete. If that were the case, the Fed might need to tighten policy sooner rather than later.
“The continued weakness in aggregate demand is likely the predominant factor. Consequently, the Federal Reserve’s accommodative monetary policies, by providing support for demand and for the recovery, should help, over time, to reduce long-term unemployment as well,” he said.
“Payment of tuition fees for undergraduate/postgraduate studies shall be subject to a maximum limit of $25,000.00 per semester,” the Manual states.
The expansion of international card limits also reflects growing confidence among lenders that foreign exchange liquidity has improved enough to support retail dollar transactions.
Speaking recently at the BusinessDay 14th Annual CEO Forum in Lagos, CBN Olayemi Cardoso, governor of the CBN said buying and selling activities now increasingly determine outcomes in the foreign exchange market, unlike in the past when market participants relied heavily on routine Central Bank interventions.
According to Cardoso, Nigeria’s net foreign exchange reserves have risen from just over $3 billion at the start of the reform programme to more than $40 billion, while gross reserves have climbed to about $52 billion, providing stronger confidence for investors and enabling the Central Bank to reserve interventions for periods of market stress rather than day-to-day liquidity management.
The restoration and expansion of international naira card spending limits are increasingly being seen as one of the clearest signs that the benefits of the CBN’s foreign exchange reforms are beginning to reach households, students and businesses making legitimate cross-border payments.
The Secretary-General and Chief Executive Officer, WEC, Dr Angela Wilkinson, disclosed this in a statement, last Thursday.
“Nigeria’s participation comes at a pivotal time as the country seeks to expand energy access, strengthen energy security, accelerate gas development and mobilise the capital required for industrialisation and sustainable economic growth.
“WEC Nigeria will convene leaders from across the energy ecosystem, apply the WEC’s globally recognised Energy Trilemma framework to Nigeria’s unique context, and promote evidence-based dialogue, practical collaboration and informed policymaking.
“It will also ensure that Nigerian and broader African perspectives contribute meaningfully to global energy conversations,” she said.
Wilkinson expressed confidence that Nigeria would play a significant leadership role at the World Energy Congress scheduled for Riyadh in April 2027 and beyond.
The statement also quoted the Chairman of WEC Nigeria, Isa, as describing the country’s participation as an opportunity to deepen national and African leadership within the global energy community through practical solutions tailored to regional development priorities.
He said the platform would promote collaboration across sectors and attract sustainable investments into Nigeria’s energy sector.
The Chief Executive Officer of WEC Nigeria, Wunti, was quoted in the statement as saying that the council would connect leadership, evidence and investment to build a secure, affordable and sustainable energy system.
“This system will be capable of driving economic growth and shared prosperity.”
According to him, the platform will also connect Nigerian institutions and businesses with international knowledge, technology, partnerships and investment opportunities through the World Energy Council’s global network.
Recall that WEC, founded in 1923, is the world’s oldest independent and impartial community of energy leaders and practitioners, advancing informed, collaborative and practical action across the global energy system.