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U.S. Fed Can Do Something About Employment

ByThe National Bank of Canada
Published 07/15/2012, 03:30 AM
Updated 05/14/2017, 06:45 AM

Looking at the recent Fed minutes, it’s clear that the FOMC doesn’t seem too confident about its abilities to help the labour market ― it attributes much of the latter’s weakness to structural problems with some members even implying that the natural rate of unemployment was now at a higher level. While there’s some evidence to support that view, that shouldn’t prevent the Fed from doing its best to achieve its objectives. Recall that the Fed has a dual mandate in keeping inflation stable (its year-on-year target is 2%) and to support employment. It is, arguably, failing on both fronts at the moment.

More aggressive action by the Fed, e.g. third round of quantitative easing, can help the real economy by boosting confidence in financial markets the way QE2 did, but also by cheapening the US dollar giving a boost to exports which are becoming increasingly important for growth (now accounts for a record 14% of US GDP). And that can translate into jobs, not just in the goods sector, but also in services. As today’s Hot Charts show, the depreciation of the USD over the last decade has helped boost the tourism industry among others, with inbound travels now above pre-2002 trends. So much so that leisure/hospitality is one of the few sectors of the US economy where employment is now back to prerecession levels.
U.S Fed can do something about employment

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