- Post 18 September 2012
- By Copy Editor
(Reuters) - Uncertainty over the economic outlook has added between one and two percentage points to the U.S. unemployment rate since 2008, according to an estimate from the San Francisco Federal Reserve Bank.
The finding, published on Monday in the regional Fed bank's latest Economic Letter, quantifies for the first time the drag that uncertainty has had on the economy since the Great Recession.
"Had there been no increase in uncertainty in the past four years, the unemployment rate would have been closer to 6 percent or 7 percent than to the 8 percent to 9 percent actually registered," wrote San Francisco Fed research advisors Sylvain Leduc and Zheng Liu.
The Fed sent short-term interest rates to zero in December 2008 to counter the deep recession, and bought trillions of dollars of bonds to further lower long-term interest rates.
But unemployment has remained stuck above 8 percent a full three years after the start of recovery. Last week the U.S. central bank embarked on a fresh round of bond-buying, saying it will not stop the purchases until it sees substantial improvement in the job market.
Inflation hawks have opposed the new effort at quantitative easing. Some, including Dallas Fed chief Richard Fisher, have argued that new monetary stimulus will be useless because it is uncertainty over taxes and regulation rather than the level of borrowing costs per se that is holding back the economy.
The research published Monday offers empirical evidence that uncertainty has indeed deepened the recession and slowed the recovery, elevating the jobless rate despite the Fed's efforts to bring it down. ... Full Story...