Tags: Moodys | Zandi | employment | jobs

Moody’s Zandi: ‘Full Employment’ by 2015 Possible if Policymakers Act Now

Friday, 20 Jul 2012 12:06 PM

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The country can return to “full employment” by 2015 if policymakers act to steer the country away from the so-called fiscal cliff by way of making lasting reform, according to Mark Zandi, chief economist at Moody's Analytics.

Currently, the unemployment rate stands at 8.2 percent roughly three years after the country officially emerged from the downturn, well above pre-recession levels.

"The U.S. economy is growing, but uncomfortably slowly. Real gross domestic product is expanding at an annual rate of only 2 percent, and recent payroll job gains have averaged 75,000 per month,” Zandi said in his latest monthly outlook. “At this pace, unemployment will remain stuck above 8 percent for some time.”

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

The U.S. economy could gain traction going into 2014 and return to “full employment,” meaning a jobless rate lower than 6 percent, by late 2015, Zandi said.

Such optimism depends heavily on the decisions of policymakers in the United States and abroad.

At the end of this year, tax breaks, including the Bush-era tax cuts, are set to expire, while automatic cuts to spending kick in, as part of an agreement to raise the country's debt ceiling in 2011.

The combination of tax hikes and spending cuts, known as a fiscal cliff, could siphon more than $500 billion out of the economy next year alone and send the country back into recession, according to some estimates.

The scheduled tax hikes and spending constitute more than 4.5 percent of GDP, which an economy growing at 2 percent cannot withstand, Zandi pointed out.

While many expect lawmakers to extend the Bush-era tax cuts and put off the scheduled spending cuts, attention to more meaningful and lasting fiscal reform would better serve the economy.

In 2013, if the White House and Congress seriously address debts and deficits, the U.S. economy can recover despite headwinds in Europe and elsewhere and enjoy lower unemployment rates.

"[D]espite the difficulties, the U.S. economy can indeed rebound," Zandi said.

Federal Reserve Chairman Ben Bernanke has said Congress must find a way to steer the country away from the fiscal cliff or the economy will suffer, adding monetary policy tools will not work.

“U.S. fiscal policies are on an unsustainable path, and the development of a credible medium-term plan for controlling deficits should be a high priority,” Bernanke told the Senate Banking Committee this week, according to the National Journal.

“At the same time, fiscal decisions should take into account the fragility of the recovery.”

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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