Labor Market Strengthens Bernanke’s Case for More Easing

September 8, 2012

By Joshua Zumbrun and Jeff Kearns –

Federal Reserve Chairman Ben S. Bernanke’s case for further monetary easing was bolstered by figures showing widespread weakness in the U.S. labor market.

“It’s probably the straw that broke the camel’s back,” said Brian Jacobsen, who helps oversee $203.6 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. “They wanted to act soon, and the data we have here doesn’t point to that substantial and sustainable improvement in the economy to justify sitting on their hands.”

Bernanke, who chairs next week’s Federal Open Market Committee meeting, may push for new bond purchases or an extension of the Fed’s pledge to hold the main interest rate near zero through at least late 2014, Jacobsen said.

Employers added 96,000 jobs in August, less than forecast by economists and down from a 141,000 increase in July, today’s Labor Department report showed. Average hourly earnings were little changed, and the unemployment rate unexpectedly declined to 8.1 percent from 8.3 percent as 368,000 Americans left the labor force.

Treasuries and gold surged, while the dollar slid and most stocks rose as investors increased bets the Fed will expand record stimulus at its Sept. 12-13 meeting. Today’s report also showed that the participation rate, which indicates the share of working-age people in the labor force, fell to the lowest since September 1981.

The results are “inconsistent with what the Fed wants to see, which is progress towards the natural rate” of unemployment, said Roberto Perli, a managing director at International Strategy & Investment Group Inc. in Washington and a former member of the Fed board’s division of monetary affairs. “If you create 100,000 jobs a month you don’t get there.”

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