Federal Reserve Bank of Chicago President Charles Evans said the drop in the unemployment rate to 8.5 percent may be partially reversed in coming months.
“I’m a little concerned that the most recent improvement is going to be transitory and it might move up above 8.5 percent,” Evans said in response to audience questions after a speech today in Carmel, Indiana.
Evans said “at the end of the year, we’re not going to be very different from 8.5 percent unemployment.”
Fed policy makers will discuss at their Jan. 24-25 meeting in Washington whether more steps are needed to bolster an expanding U.S. economy. Employers last year added 1.64 million workers, the best year for the American worker since 2006. Even with the gain, little headway has been made in recovering the 8.75 million jobs lost as a result of the recession that ended in June 2009.
The Labor Department said last week that the unemployment rate dropped to 8.5 percent, down from 8.7 percent in November, 8.9 percent in October and 9.4 percent in December 2010.
Evans said the jobless rate is “currently remaining high not so much because there are layoffs but because the hiring rate is greatly diminished.”
The speech Evans gave to the Indiana Bankers Association was the same as one he delivered two days ago. Evans said that central bankers in the past have withdrawn stimulus too early, causing the economy to relapse.
“Such errors happened in 1937 when the Fed prematurely withdrew accommodation,” Evans said at a meeting of the Indiana Bankers Association. “More recently, the Bank of Japan made the same mistake. Therefore, it is essential that the Fed clearly commit to a policy action that is measurable against our goals.”
Evans also repeated his comments from that the recent improvement in economic data, such as the unemployment rate falling to an almost three-year low, are “only modest” and that “substantial” stimulus is needed to meet the Fed’s dual mandate from Congress for maximum employment and stable prices.
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