The Fed Focuses on Jobs

Written by: Alan Edwards

On Thursday, October 4, the Federal Open Market Committee (FOMC) released the minutes from their September meeting  2012.  The minutes show that the FOMC is very concerned about the stubborn unemployment rate that exceeds eight percent.  The Fed focuses on jobs because of concerns about the long-term damage to the economy from persistent, high unemployment and underemployment as people drop out of the labor force, their skills atrophy, and productive capacity is lost.  In an effort to stimulate the economy and create conditions for additional hiring, the Federal Reserve announced after last month’s meeting it would undertake third helping of economic stimulus, ie. QE3, by purchasing $4 billion worth of mortgage backed securities every month.

The minutes of the meeting reveal:

“In their discussion of monetary policy for the period ahead, members generally expressed concerns about the slow pace of improvement in labor market conditions and all members but one agreed that the outlook for economic activity and inflation called for additional monetary accommodation.”

The minutes show that the FOMC sees a bleak short-term economic outlook and states that the pace of the economic recovery will continue to be “moderate” over the next few quarters. The continuing Midwest drought was cited In the minutes as a major factor in the short-term forecast.

Another section of the minutes related that:

“Participants observed that the pace of economic recovery would likely continue to be held down for some time by persistent headwinds, including continued weakness in the housing market, ongoing household sector deleveraging, still-tight credit conditions for some households and businesses, and fiscal consolidation at all levels of government.”

Also noted by the committee was the ongoing problems in Europe and uncertainty in the United States related to the presidential election.

The report ended by saying:

“Most participants agreed that the use of numerical thresholds could be useful in providing more clarity about the conditionality of the forward guidance but thought that further work would be needed to address the related communications challenges.”

Despite the sometimes obtuse language of the Fed, it is clear that as the Fed focuses on jobs, it will use the tools it has, such as QE3, to tackle the persistent unemployment in the U.S.

The FOMC is a group within the Federal Reserve Board that analyzes economic market condition which serve to guide the direction of monetary policy. It is made up of the Federal Reserve’s seven member board of governors and five Federal Reserve Bank presidents. The president of New York’s Federal Reserve Bank is a permanent member of the FOMC and the four other seats on the committee are rotated among the other Federal Reserve Bank presidents who serve for a one year term.

The group meets eight times per year in order to set important interest rates including the discount rate and to decide if the money supply should be increased or decreased by buying or selling federal government securities. To increase the money supply, the Fed buys securities, to decrease the money supply they sell them.

 


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The Fed Focuses on Jobs

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