Earlier this week, President Obama nominated Federal Reserve Vice Chair Janet Yellen for Chair of the Fed.
Already, economists are combing through her old speeches to figure out what she may or may not push in terms of monetary policy.
For now, the consensus is that she will keep monetary policy easy, largely due to the painfully high unemployment rate.
At least two top Wall Street economists have circulated this chart of the long-term unemployment rate.
“She focuses on long-term unemployment and its associated risks, including skill atrophy and the potential for household credit problems,” said Deutsche Bank’s Carl Riccadonna. “The ranks of individuals out of work for more than half a year has steadily declined since mid-2010, although it remains roughly double the average of the prior economic cycle.”
Riccadonna appears to be referring to this excerpt from a speech she gave in February to the AFL-CIO:
Individuals out of work for an extended period can become less employable as they lose the specific skills acquired in their previous jobs and also lose the habits needed to hold down any job. Those out of work for a long time also tend to lose touch with former co-workers in their previous industry or occupation–contacts that can often help an unemployed worker find a job. Long-term unemployment can make any worker progressively less employable, even after the economy strengthens.
“With employment so far from its maximum level and with inflation currently running, and expected to continue to run, at or below the Committee’s 2 per cent longer-term objective, it is entirely appropriate for progress in attaining maximum employment to take center stage in determining the Committee’s policy stance,” said Credit Suisse’s Neal Soss.