Tags: Rosenberg | 6.5% | jobless | 2018

Gluskin Sheff’s Rosenberg: Fed Goal of 6.5% Jobless Rate Could Come in 2018

Monday, 17 Dec 2012 09:27 AM

The Federal Reserve has said it will keep interest rates at rock-bottom levels provided unemployment rates hover above 6.5 percent, well beneath today’s rate of 7.7 percent.

Given the current rate of job creation, the Fed may be leaving monetary policy unchanged for a long time, possibly until 2018 if job growth stays at its current level of about 150,000 new nonfarm payrolls a month, David Rosenberg, chief economist and strategist for Gluskin Sheff & Associates, said in a Reuters Global Markets Forum chat room interview.

To reach the Fed’s goal in a year, including taking into account population growth, the economy would have to add 270,000 jobs a month, according to CNNMoney.

Editor's Note:
I Wish I Were Wrong — Economist Laments Being Right. See Interview.

To hit that 6.5 percent unemployment rate in two years, the economy would have to add 200,000 new jobs a month.

That might be optimistic, said Rosenberg, CNNMoney reported.

If job growth continues at its current pace of 150,000 jobs a month, "we could be talking about 2018 for the end of financial repression," he told Reuters.

On top of keeping interest rates low, the Fed will spend $85 billion a month buying assets such as Treasury holdings and mortgage debt from banks, a monetary policy known as quantitative easing (QE), to keep the economy awash in liquidity to ensure borrowing costs stay low and encourage investing and job creation.

"I think the effectiveness of these QEs is beginning to wane. The Fed is not equipped to deal with structural debt issues," he said. "Operation Twist and QE3 are clearly not having any enduring impact unless you live in the world of the counterfactual."

Other economists point out the Fed’s new policy of pegging a specific unemployment rate to when it will consider adjusting monetary policy as a message of clarity to the markets that loose policy will stay put for now.

“The Fed has become more explicit and more transparent,” said Steven Wood, chief economist at Insight Economics, according to The Associated Press.

“This should provide the markets with much more clarity around monetary policy action in the upcoming year.”

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

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