Bernanke recovery plan has few jobs

WASHINGTON — Hubert Humphrey and Augustus Hawkins wouldn't like what Ben S. Bernanke has to say to Congress today.

The Federal Reserve chairman, delivering semiannual testimony required in legislation written by the late lawmakers, will describe a U.S. economy returning to growth next year without generating many new jobs. Even with credit markets thawing, Fed officials see unemployment persisting at 8 percent or higher through the final three months of 2010.

"We could have an awkward situation where the recession ends and the job-loss situation continues for some time," says Christopher Rupkey, chief financial economist at Bank of Tokyo Mitsubishi UFJ Ltd. in New York. That "probably hasn't been a factor that has pressured the Fed since the 1990-1991 recession."

A recovery with slow job growth would keep pressure on the Fed to hold interest rates around zero and to continue or expand billions of dollars in lending programs and asset purchases. It would also mark a failure to fulfill the mandate of the Humphrey-Hawkins Full Employment and Balanced Growth Act, signed into law by President Jimmy Carter on Oct. 27, 1978, that the central bank achieve both maximum employment and stable prices.

"We've got a lot to talk about," says Rep. Maxine Waters, 3-Calif., who succeeded Hawkins in Congress in 1991. She serves on the House Financial Services Committee, which will hear from Bernanke on Wednesday, the day after he meets with the Senate Banking Committee.

Hawkins died in 2007; the bill's other author, Humphrey — a former Democratic vice president and 1968 presidential nominee — died in 1978 before the measure was approved.

Bernanke, the 55-year-old Fed chairman, says returning to lower levels of unemployment depends on financial stability and improved flows of credit. The Fed has used its balance sheet to try to compensate for the pullback in bank lending, more than doubling Fed credit to the economy to $1.9 trillion.

Preventing higher unemployment "depends critically on policy," Bernanke told the National Press Club in Washington on Feb. 18. "If we can take strong and aggressive action, including the Fed's actions to try to improve credit markets, I think we can break the back of this thing and we will begin to see improvements in 2009."

While some Fed officials expect economic growth to resume in the latter half of this year, unemployment may not get below 7 percent until 2011 or even later, according to the latest forecast.