Greg Robb reports for MarketWatch:
They were 1,800 miles apart as they delivered their speeches, but the remarks of Federal Reserve Bank of San Francisco chief Janet Yellen and her Atlanta Fed counterpart Dennis Lockhart bore some similarities -- namely, as near as they could tell, the nation's economic recovery was likely to be subdued.
These comments are important because they are the first by Fed officials after their closed-door policy meeting on monetary policy and rates last week. ...
At their meeting, they voted to keep rates at historic lows and said in the policy statement that these "exceptionally low" rates would be needed for an "extended period."
Those weren't the only ones. Richard W. Fisher at the Federal Reserve Bank of Dallas said similar things.
As in other recent speeches, Yellen highlighted plenty of good news:
"This is the first talk I’ve given since the economy has officially been reported to be growing again. The economy’s return to growth after a year and a half of recession marks a major turn, and it looks like more than a flash in the pan. It seems to me that the economy has entered a sustained period of expansion.
"We’ve seen meaningful upturns in areas as diverse as housing, consumer spending, industrial production and foreign trade. And, a number of factors bode well for the future, including a better functioning financial system, low mortgage interest rates, a resurgent stock market, a stabilization of house prices and stronger growth abroad."
[...]
To me, the explanation for this turnaround is clear: Massive and concerted responses by governments and central banks around the world rescued the financial system, brought down interest rates, provided emergency support, and broke the economy’s downward spiral. On the monetary policy side, the Fed has pushed its traditional interest rate lever—the federal funds rate—close to zero. And, in order to provide additional stimulus, we put in place an array of unconventional programs to spur the flow of credit to households and businesses. These measures provided funding to banks and restored liquidity to a range of markets. We’ve increased the flow of credit for securities backed by small business loans, consumer loans, and other assets. Our large-scale purchases of Fannie Mae and Freddie Mac debt and mortgage-backed securities (MBS) helped lower mortgage rates and bolstered the housing market. We’ve also bought longer-term U.S. Treasury debt to help bring private borrowing rates down.
She spoke positively of the role governments and central banks around the world engaged in to save financial institutions, a move she said, as have so many others, staved off a depression.
But not everything is rosy in her view:
Weakness in the labor market is another factor that may keep the recovery sluggish for quite some time. ...
To bolster earnings in the face of weak revenue growth, employers have been aggressive in cutting labor costs and jobs, and my business contacts say they will be reluctant to hire again until they see clear evidence of a sustained recovery. Weak demand for workers is also putting a lid on paychecks. Wages are barely rising. A well-known measure of overall employment costs rose by only 1¼ percent over the past year, the smallest increase in the history of the series. High unemployment, weak job growth and paltry wage increases are a recipe for sluggish consumer spending growth and a tepid recovery.
The U.S. experienced so-called jobless recoveries following the previous two recessions in 1991 and 2001, when job creation remained weak for several years following the business cycle trough. In both cases, output growth was less robust than in the typical recovery and, unfortunately, things seem to be shaping up similarly this time around.
Fisher noted:
I am wary of the consensus view. For a good while now, I’ve suggested that we are more likely to see a more uneven recovery—not a "V"-shaped recovery but something more akin to a check mark, where the elongated arm of that check mark inclines at a slope that is less than desirable and might possibly be repressed by an occasional pause or several quarters of weak growth. ...
"[L]ooking into 2010 and perhaps to 2011, the most likely outcome is for growth to be suboptimal, unemployment to remain a vexing problem and inflation to remain subdued."
Lockhart did not invoke the oxymoronic "jobless recovery" in his own speech, which similarly devoted considerable time to improvements seen in the economy in the past few months. Especially encouraging, he said, was that growth began sometime this past summer. But he also noted:
At this juncture, it’s hard to be encouraged about a fast rebound in job growth. As you know, last week’s employment report pushed the official unemployment rate to 10.2 percent, the highest since May 1983. Net job losses continue on a monthly basis but at a declining pace. Because employment growth tends to lag recovery from a recession and because of factors such as small business credit constraints, my current outlook for employment is one of very slow net job gains once the trend reverses, in all likelihood sometime next year. ...
Turning to the outlook from here, my baseline forecast is for a relatively subdued pace of growth beyond the current quarter and through the medium term. The potential sluggishness of the recovery partly reflects certain unique characteristics of this recession.
Certainly this recession, the Great Recession, has its unique characteristics beyond being the deepest and steepest downturn since the Great Depression. But more and more experts are coming to believe - as many of us amateur observers have believed for a long time - that this recession will apparently not be unique in the speed with which jobs return to "normal." Instead, it appears we are on a path of continuing the trend of the previous two recessions. That means a relatively rapid return of previous levels of gross domestic product and, by the standards of post-World War II recessions prior to 1990, an abnormally slow return to previous levels of employment.
The Obama administration inherited this economic mess, and 10 months are in no way time enough to repair all the cumulative damage caused by economic policies dating back to the Reagan administration. But as the 2010 election season gets under way, that situation cannot help but put pressure on the Obama administration to seek new means of getting Americans back to work.
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wader has posted the Overnight News Digest.