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Jobless Numbers Add to Concern on Monetary Policy

Douglas Graham/CQ Roll Call
During Yellen’s confirmation hearing late last year, Schumer questioned her about why she thinks income inequality in the United States is growing.

Given the low labor force participation rate, especially among working-age people, even 6.5 percent “really means something higher than that,” he said.

John Dearie, executive vice president for policy at the Financial Services Forum and co-author of the book “Where the Jobs Are,” said that November marked the “43rd consecutive month during which more unemployed Americans left the workforce discouraged than found jobs.”

Even so, by the end of last year, the economy appeared poised for better growth in 2104. And as the unemployment rate hit 7 percent — and Congress inked a small but significant budget deal — the Federal Reserve’s policy committee decided to scale back its bond-buying program, known as quantitative easing, by $10 billion starting this month.

“At the Fed, they’re not only going to be looking at the unemployment rate; they’re going to be looking at why the unemployment rate is moving and looking at regional differences,” said Mark Calabria, a former senior Republican Banking Committee aide who is now director of financial regulation studies at the Cato Institute. “And they’ll keep an eye on what is Congress doing.”

Calabria added that the Fed probably won’t tighten up its monetary policy, as outgoing Fed Chairman Ben S. Bernanke has indicated, because of worries over uncertainty and new fiscal fights on the horizon.

Republicans have already pledged to seek policy concessions from the White House over President Barack Obama’s request to raise the debt limit this spring.

“There’s a reason to feel that the Fed is probably going to err on the side of liquidity and accommodation longer than they otherwise would have because there’s so much concern about uncertainty coming from Congress,” Calabria said.

The politics of an election year only add to that uncertainty. The issue of jobs is sure to be a hot topic on the campaign trail and already has molded the congressional agenda this year, with a Senate cloture vote on unemployment insurance benefits passing Tuesday and Democrats pushing for an increase to the nation’s minimum wage on the horizon.

Republicans have their own policy measures, such as reducing regulatory and tax burdens on businesses, that they say will help boost the economy and create jobs.

“I think the next year is going to be a series of votes where the Democrats try to distinguish themselves from Republicans with the theme of income inequality,” Calabria said.

Much of it, he said, will feature Democrats playing to their labor union base. “It really is ‘What have you done for us lately?’” he said.

But if the White House and Democrats in Congress will be in agreement with most unions on unemployment benefits and raising the minimum wage, they will most likely find discord when it comes to the Obama administration’s trade agenda, which includes pushing for a renewal of fast-track authority and a sweeping deal known as the Trans-Pacific Partnership.

Trade deals such as the North American Free Trade Agreement 20 years ago and a recent pact with Korea have been a drain on the U.S. economy and have cost millions of jobs, said Kenneth Peres, the chief economist for the Communications Workers of America. The Trans-Pacific Partnership deal, he said, would just continue the “race to the bottom,” perhaps leading to higher unemployment and stagnant wages.

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