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Employment increase not enough

US Fed Reserve pessimistic

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Arab Today, arab today US Fed Reserve pessimistic

US Fed Reserve
Washington - Arabstoday

US Fed Reserve Washington - Arabstoday A third straight month of strong US job creation is unlikely enough to budge the Federal Reserve\'s policy makers from their easy-money stance when they meet Tuesday, analysts said. Even if Friday\'s February jobs numbers suggest a firming of the US economy, the central bank\'s leadership remains unconvinced about any pickup. More worried about a slowdown, they have even placed a new stimulus plan on the back burner, according to one media report. But that only underscores the challenge for even the experts on how to view the solid pickup in business that US companies are enjoying against the still-huge slack in the employment and housing sectors. \"The Fed will wait for a clearer economic picture before deciding what to do next,\" said Chris Low of FTN Financial. But, given the Wall Street Journal story last week that the Fed had designed a \"QE3\" stimulus program, he said, \"they may be more concerned about the economy than we think.\" On Friday the Labor Department reported that the economy created 227,000 new jobs in February, topping the 200,000 mark for the third straight month. That good news echoed hopeful data from other areas: layoffs are down, consumer borrowing has grown, and Americans are buying new cars at the fastest rate since early 2008. The stock market is also at its best level since then, buoyed by the strong earnings in the corporate sector. All that, and a pickup in inflation in January, would appear to suggest that the US central bank needs to think about how to keep growth and prices under control. But the Fed sees another picture, which shows why it is likely to keep its ultra-low interest rate policy of more than three years in place Tuesday. On February 29 Fed chairman Ben Bernanke told Congress the economy is still being held back by the tight wallets of American consumers, that will keep overall economic growth at a tepid 2.25 percent this year. \"The fundamentals that support spending continue to be weak,\" he said. \"Real household income and wealth were flat in 2011, and access to credit remained restricted for many potential borrowers. Consumer sentiment, which dropped sharply last summer, has since rebounded but remains relatively low.\" Bernanke\'s primary worry is the continued slack in the jobs market. In February the overall unemployment rate held steady at 8.3 percent, unchanged from January after falling for five straight months. The pickup in job creation is being answered by a return to the labor market of people who had dropped out altogether so that the number of official job-seekers remained unchanged at 12.8 million, a level that clearly troubles the Fed. At the current job creation rate it could take eight years to return to the level of unemployment and labor market participation rate of the early 2000s. A second worry is that the devastated US housing sector has not turned around, despite the Fed\'s actions that have pushed home-loan rates to record lows. Even if buying returns, the stock of foreclosed housing controlled by banks and by homeowners who have defaulted on their mortgages is so large that it will keep the market depressed for years. Another third source of concern were the January trade figures released Friday which showed a big increase in imports -- especially of higher-priced oil -- which is usually a negative for economic growth. \"We\'re not out of the woods yet,\" economists Nigel Gault and Paul Edelstein of IHS Global Insight said in a research note. \"Soon enough, we\'ll learn how much of the recent improvements were weather-related as we move from a warm winter to a \'par-for-the-course\' spring. Consumers will have a chance to respond to higher gasoline prices and in the background, the eurozone debt crisis will continue.\" That is why some analysts are taking seriously the Wall Street Journal\'s report last week that the Fed is weighing a new bond-buying program to boost the US economy that would not add to inflationary pressures. QE3, which would be the third round of its \"quantitative easing\" operations, is being kept on the shelf to see how things go over the next several weeks, the Journal reported. It cited no sources, but the reporter is known to be close to the Fed, and the Fed did nothing to suggest the story was wrong.

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