Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Report on Business

Economy Lab

Delving into the forces that shape our living standards
Best Business Blog, EPPY awards, 2011 and 2012

Entry archive:

Economy Lab has moved

Only Globe Unlimited members will now have access to a wide range of insightful commentary
and analysis on the economy and markets previously offered on this page.


Globe Unlimited subscribers will be able to read these columns,
written by some of Canada’s most deeply respected economists,
such as Christopher Ragan, Sheryl King, Andrew Jackson, and Clement Gignac,
as part of our ROB INSIGHT section.


All of our readers will still be able to browse the Economy Lab archives and read our
broader coverage of economic data and news by accessing their 10 free articles a month.


Learn more about Globe Unlimited and how to subscribe.

U.S. Federal Reserve chairman Ben Bernanke arrives to testify at a Joint Economic Committee hearing on economic outlook and policy on Capitol Hill in Washington on Thursday, June 7, 2012. (JASON REED/REUTERS)
U.S. Federal Reserve chairman Ben Bernanke arrives to testify at a Joint Economic Committee hearing on economic outlook and policy on Capitol Hill in Washington on Thursday, June 7, 2012. (JASON REED/REUTERS)

Bernanke to Congress: It’s all about growth Add to ...

Federal Reserve chairman Ben Bernanke has given investors some excellent guidance on how the U.S. central bank will decide whether further economic stimulus is needed.

Taking questions on Capitol Hill from the Joint Economic Committee, Mr. Bernanke said the “essential question” facing the Fed’s policy body is whether the economy is growing fast enough to lower the unemployment rate.

The Fed is mandated to achieve “maximum employment.” That equates to unemployment of about 5.5 per cent. The jobless rate in May was 8.2 per cent.

That’s a big gap, yet one that was closing rapidly until recently. (The unemployment rate fell to 8.1 per cent in April from 9.9 per cent two years earlier.) Mr. Bernanke is uncertain how much of that decline had to do with a stronger economy. He said in his testimony that the drop likely relates to a “catch up” by employers who fired too many people too quickly at the start of the financial crisis. A mild winter also likely pulled forward some construction hiring that would otherwise have occurred in the spring, he said.

Those special factors probably have passed. “We may be at the end of the catch-up period,” Mr. Bernanke said. That means the further improvements in hiring will be contingent on the strength of the economy. “We’ll need to see growth at or above trend,” Mr. Bernanke said. Trend is roughly 2.5 per cent. (The Federal Open Market Committee’s consensus estimate for longer run U.S. economic growth is 2.3 per cent to 2.6 per cent.)

Mr. Bernanke said he believes the Fed still has the ability to boost economic growth. The decision to deploy a third round of asset purchases, extending the Fed’s conditional commitment to leaving interest rates near zero through 2014, or any other measure the Fed might take will be weighed against negative side effects those measures might create, Mr. Bernanke said. “At this point, I can’t say that anything is off the table,” he said.

The Fed’s policy committee next meets on June 19-20. That committee’s chairman made it clear Thursday that any action in two weeks will be contingent on that group’s assessment of whether the U.S. economy can achieve a growth rate in excess of 2 per cent annually. Expectations for QE3 or another form of stimulus should correlate to expectations for the U.S. economy.

“The key question we will be facing is, `Will economic growth be sufficient to achieve further progress in the labour market?’” Mr. Bernanke said. “Our mandate suggests we should be seeking further improvement.”

In the know

Most popular videos »

Highlights

More from The Globe and Mail

Most popular