As uncertainty fades, businesses may boost hiring -Fed paper
SAN FRANCISCO, July 22 (Reuters) - Uncertainty over economic policy has made U.S. businesses wary of hiring in recent years, boosting the jobless rate significantly, a paper published Monday by the San Francisco Federal Reserve Bank showed.
Without policy uncertainty, the jobless rate in late 2012 would have been around 6.5 percent instead of 7.8 percent, the paper's authors said. Unemployment in June stood at 7.6 percent.
But as the economy improves and businesses regain confidence, policy uncertainty should recede and "the pace of job recovery should accelerate," wrote San Francisco Fed vice president of research Sylvain Leduc and research advisor Zheng Liu in the latest edition of the regional Fed's Economic Letter.
How best to bring down excessively high U.S. unemployment has been a been a topic of hot debate in economic and Fed policymaker circles since the Great Recession.
To some, including Dallas Fed President Richard Fisher, easy Fed monetary policy can do little to boost hiring precisely because it is powerless to reduce fiscal policy uncertainty, which Fisher has blamed as the biggest barrier to jobs growth.
The San Francisco Fed researchers did not directly address the role of monetary policy in bringing down unemployment.
But they did blame higher unemployment on a rise in both fiscal and monetary policy uncertainty.
"In an uncertain economic environment, businesses reduce their recruiting intensity," the authors wrote. "This means that job seekers are less likely to be successful in finding work, even though posted job vacancies increase."
The Fed has gone far into uncharted monetary policy waters with its massive bond-buying program, which Fed Chairman Ben Bernanke has signaled may shrink in coming months if the U.S. jobless rate continues to decline.
At the same time the Fed has promised to keep short-term interest rates low until the jobless rate falls to at least 6.5 percent, as long as inflation stays in check.