April 5, 2013 / 12:14 PM / in 5 years

Labor "scarring" reason for more bond buying: Fed official

(Reuters) - The Federal Reserve should continue buying bonds through this year due to a “scarring” of the labor market, and even more aggressive policies may be warranted if unemployment remains persistently high, a top Fed official said on Friday.

As Boston Fed President Eric Rosengren took to the podium to give a speech on the pain caused by high rates of unemployment, fresh data showed employers added a very disappointing 88,000 jobs last month, the slowest hiring pace since last summer.

The U.S. unemployment rate ticked down to 7.6 percent from 7.7 percent in the previous month, as more people gave up the search for work.

Rosengren, a dovish voter on the Fed’s monetary policy committee this year, highlighted the difficulties that less-educated Americans face in the search for work in the wake of recession.

“Spells of unemployment can have a lasting impact long after the economy recovers,” Rosengren said in prepared remarks to an early-childhood forum in Boston.

“If spells of unemployment have a persistent impact on income, wealth and home ownership, then a more aggressive response to persistently high unemployment rates is warranted.”

Frustrated with the slow and erratic economic recovery, the Fed has tied its $85 billion in monthly asset purchases to a substantial improvement in the labor market outlook, and has said it will keep interest rates near zero until unemployment drops to 6.5 percent or so.

In recent weeks, some Fed policymakers have said they were looking for more than 200,000 new jobs per month consistently for them to feel comfortable the labor market is healing and the economy will be able to avoid a mid-year pullback.

“More rapid economic growth is likely to not only reduce the unemployment rate, but also reduce some of the collateral damage the economy may otherwise face from the spells of long-duration unemployment,” Rosengren added.

“Continued accommodative policy, such as continuing our asset purchase program through this year, is an appropriate response to labor market scarring,” he said.

The purchases of Treasury and mortgage bonds are meant to spur investment, hiring and broader economic growth.

U.S. joblessness has edged lower since it soared as high as 10 percent at the tail end of the 2007-2009 recession, which was the worst in decades. In March, the data showed the labor market participation rate hit its lowest level since 1979.

Reporting by Jonathan Spicer; Editing by Chizu Nomiyama and Jeffrey Benkoe

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