ANALYSIS – Fed meeting could provide clues on plans to create jobs in the era of coronavirus

ANALYSIS – Fed meeting could provide clues on plans to create jobs in the era of coronavirus

ANALYSIS - Fed meeting may provide clues on plans to create jobs in the era of coronavirus

WASHINGTON (Reuters) – Eight years ago, as the United States was struggling with the aftermath of a deep recession, the Federal Reserve set an unemployment rate that it believes would be a good benchmark for the economy returning to normal.

The 6.5% rate set by the Fed in 2012 was almost double the unemployment rate that the US eventually hit during its record period of economic growth. As a result, many were convinced that the Fed had misjudged the willingness of those marginalized to return to the labor market.

This week, the Fed will revive this debate in very different circumstances, with the implementation of the revised approach to monetary policy in practice at its meetings on September 15 and 16. The Fed says the mistakes over job creation are a thing of the past after a pledge of “broad and inclusive” employment announced in late August.

It is only unclear what the Fed plans to do to accelerate the return to full employment of the nearly 30 million Americans receiving some form of unemployment benefits, and when. These questions are important for Wall Street investors, companies large and small, the mass of unemployed people in America, and perhaps for the November presidential election.

This week's meeting will not answer them. But there should be clues in the new economic forecasts that Fed officials will release after the meeting, the last one before the November elections, and in the press conference of Fed Chairman Jerome Powell.

Ultimately, the Fed could buy more bonds, make more detailed promises to keep credit easy for years to come, or even take more aggressive steps if the pandemic worsens and conditions worsen.

Despite new employment commitments, lending programs and low interest rates introduced in response to the pandemic this spring, “we are preparing for another long painful recovery, where some people feel great because they have a lot of shares and others have lost. work, “said Andrew Levin, professor of economics at Dartmouth College and former Fed adviser.

“This is déjà vu” of the last US economic recovery, he added.

New economic forecasts this week will provide a first, longer-term view through the end of 2023 on how Fed officials see the new approach working in practice, and how quickly they think the labor market can recover.

The official unemployment rate of 8.4% in August is already below what most Fed officials expected by the end of the year. But he can also underestimate the real economic impact of the coronavirus on households.

This week should show whether Fed officials think the pace of the recovery will continue, and how this affects their view of the recovery.

“The Fed has made it clear to us that they are no longer even going to pretend to be preemptive,” raising rates to stop inflation before it starts, said Eric Weissman, chief economist at MFS Investment Management.

“We want a lot more specificity,” he added.

(Howard Schneider, with contributions from Anne Sapphire. Translated by Alexey Kuzmin. Editor Marina Bobrova)

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