Jobless rate pressures Fed toward providing more stimulus

via: TheGlobeAndMail
by: Kevin Carmichael
July 29, 2012

The stage is set for further economic stimulus from the U.S. Federal Reserve, perhaps as soon as Wednesday, when the U.S. central bank’s policy committee concludes a two-day meeting that dominates the economic calendar this week.

Hope that the U.S. unemployment rate might drop below 8 per cent this year is diminished, if not lost.

Gross domestic product grew at an annual rate of 1.5 per cent in the second quarter, according to an initial government estimate released Friday.

That’s coasting speed, not the “escape velocity” needed to make the financial crisis a speck in the rear-view mirror.

The Fed is mandated to achieve “maximum employment,” which officials equate to an unemployment rate somewhere in the neighbourhood of 5.5 per cent.

With inflation expectations tethered at a rate well within the Fed’s comfort zone, the case for further stimulus measures easily could be made.

“Progress on bringing down the unemployment rate has probably slowed to a snail’s pace and perhaps even stalled,” John Williams, president of the Federal Reserve Bank of San Francisco and a voting member of the Fed’s policy committee, said last week.

“I expect little progress toward maximum employment over the next year or more,” Mr. Williams added.

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