Fed Message to Be Muddled If Aid to Unemployed Expires: Economy
By Victoria Stilwell - Dec 11, 2013
More than 2 million unemployed Americans are at risk of losing their jobless benefits over the next three months. That threatens to undermine the unemployment rate as an anchor for future Federal Reserve action.
For the past year, central bank officials have said their benchmark interest rate will remain near zero as long as the unemployment rate is at least 6.5 percent. Calculations by Michael Feroli, JPMorgan Chase & Co.’s chief U.S. economist in New York, indicate that mark could be reached within months.
Federal funding for emergency unemployment insurance payments, which has been part of stimulus packages since the financial crisis in mid-2008, may expire at the end of the year after being left out of a bipartisan budget deal making its way through Congress. The number of discouraged, long-term unemployed workers leaving the labor force will probably climb as a result, according to Feroli, pushing down joblessness.
The central bank’s jobless rate threshold will be “a diminished communication tool,” said Feroli, a former economist at the Fed in Washington. “It increases the importance of their ability to convey this message that 6.5 percent is not a trigger, it’s only a point at which they’ll begin considering rate hikes.”
The Fed for the first time linked the outlook for its main interest rate to numerical thresholds for unemployment and prices in December 2012, saying rates would stay low “at least as long” as joblessness remains above 6.5 percent and inflation is projected to be no more than 2.5 percent.
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http://www.bloomberg.com/news/2013-12-11/fed-message-to-be-muddled-if-aid-to-unemployed-expires-economy.html