US Fed vows to act if jobs market flounders

WASHINGTON (AFP) – Federal Reserve chairman Ben Bernanke on Thursday vowed he would intervene if US unemployment worsens, amid evidence of a jobless and tepid recovery.

Bernanke, naming unemployment as the most pressing challenge for the US economy, said the Fed will return to crisis-management policies if needed.

“We are ready and will act if the economy does not continue to improve, if we don’t see the kind of improvements in the labor market that we are hoping for and expecting,” Bernanke told a House of Representatives committee.

His comments came hours after the Labor Department reported 464,000 Americans began claiming unemployment benefits last week, an eight-plus percent rise over the week before.

“Unemployment is the most important problem we have right now,” the central banker conceded during a second day of congressional grillings.

“It is incredibly important that we get the unemployment rate down and get people back to work. It’s important not just for their sake but for the future of our economy,” he said.

Bernanke again outlined Fed measures that could help stimulate growth, including buying new assets and lowering interest rates on bank deposits held by the central bank.

With the recovery from recession slowing, Bernanke underlined the impact of long-term unemployment on sustainable growth.

“People are out of work for a long time, lose skills and become less connected to the labor markets,” Bernanke said.

Nearly seven million Americans have been out of work for more than 27 weeks, representing almost half of all those out of work.

In a bid to ease their plight, the Democratic-controlled Congress on Thursday approved an extension of unemployment benefits for the long-term unemployed, which President Barack Obama plans to sign into law.

Aid had been frozen for almost two months because of political wrangling. Some 2.5 million Americans had gone without unemployment insurance since early June as Republicans balked at the 33-billion-dollar price tag.

Obama earlier this week called for the measures to be passed: “It is time to stop holding workers laid off in this recession hostage to Washington politics.”

The extension was also seen as a way of injecting over 30 billion dollars in government stimulus into the economy.

But experts warned the aid may still be slow in getting to claimants, delaying any economic impact.

“Unfortunately, due to processing delays, states are not expected to pay out on the extensions for at least a month after the law is signed,” said Jeffrey Rosen, an economist at Briefing.com.

“Until the payouts are processed, we will experience weaker aggregate income growth and possibly less-than-expected consumption growth.”

Buoyed by the passage of the extension, the White House is now setting its sights on legislation that would help loans to small businesses, measures it said would “expand and create jobs.”