The United States risks an extended period of low economic growth with little job creation and additional emergency measures being considered by the Federal Reserve aren’t likely to work, said Christopher Pissarides, the winner of this year’s Nobel Prize for Economics.
“There is a high risk that there might be a lost decade,” Pissarides, a professor at the London School of Economics, said in an interview in Rome today. “The situation is worrying because there hasn’t been as much job creation as expected.”
While the U.S. economy has emerged from a recession, growing at a 2 percent annual rate in the third quarter, companies continue to resist hiring. The U.S. Labor Department said 64,000 jobs were created in September, fewer than economists forecast, and the jobless rate remained at 9.6 percent.
Some economists compare the situation with Japan in the 1990s when its asset bubbles burst, credit flow contracted, and both employment and prices stagnated, giving rise to the expression “lost decade.”
Pissarides said the lower growth and lack of jobs also make the U.S. look increasingly “like a European country, but without the social policy framework that Europe has.”
U.S. Federal Reserve Chairman Ben S. Bernanke said Aug. 27 the central bank would “do all it can” to sustain the economic recovery. Investors anticipate the Fed will carry out more so- called quantitative easing, a move that would pump additional money into the world’s largest economy.
“It cannot achieve much,” Pissarides said. “What we need is for banks to start lending more for house purchases and job creation.”
He said alternative solutions could include new fiscal policies and measures making it harder for banks to deposit money with the central bank, thereby forcing them to give credit.
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