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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.

The debate on Capitol Hill over expired unemployment benefits is putting a spotlight on the still-rough labor market. The nation’s unemployment rate may be ticking closer to the Federal Reserve’s threshold of 6.5 percent, the point where the central bank will reassess its historically low interest rates. But even as the central bank has started to ease back ever so slightly on its economic stimulus program, economists from both sides of the political aisle say the jobs crisis sparked by the 2008 financial meltdown is far from over.

But just what Congress and the Fed can and should do about the sluggish employment market remains the subject of intense disagreement on and off the Hill. As the Federal Reserve ushers in a new era under the chairmanship of Janet L. Yellen, who won Senate confirmation on Jan. 6 and will take the helm of the Fed on Feb. 1, the labor market is likely to remain at the forefront.

Friday’s jobs report only added fuel to the debate: the unemployment rate ticked down from 7 percent to 6.7 percent, but two-thirds of the decline came from the withdrawal of workers from the labor market, and only a third came from the addition of some 74,000 jobs to the market, according to the Bureau of Labor Statistics.

The 6.5 percent benchmark serves as a guide to investors, who can expect that the Fed will be aggressive at least until the data point is met, said William Spriggs, the chief economist for the AFL-CIO. Even after that, the Fed may continue to purchase Treasury and mortgage-backed securities and can leave the federal funds rate on the floor, especially if the rate of inflation continues well below the Fed’s 2 percent target.

Yellen, Spriggs said, “is someone who is driven by numbers. If we get to 6.5 percent and they are still well inside their inflation target, I believe she’ll say, ‘Let’s go underneath that 6.5’” percent target.

The uncertainty comes from the nature of the unemployment rate, which provides only a rough estimate of the state of jobs in America. The rate doesn’t include people who have given up looking for work or those who are working part time when they want a full-time job. The labor force participation rate is just over 62 percent, the lowest since the late 1970s.

Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and a former economic adviser to Vice President Joseph R. Biden Jr., said that no one expects the Fed to raise the federal funds rate the minute the official unemployment rate hits 6.5 percent. The target is a “benchmark,” he said, “not an iron-fast rule.”

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