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By Jeremy Glaser | 11-08-2012 12:00 PM

The Economy's Deer-in-Headlights Mind-Set

Fed economist Bill Strauss discusses what's needed to calm unemployment and corporate fears as well as how the central bank is aiming to quell inflation concerns.

Jeremy Glaser: For Morningstar, I am Jeremy Glaser. I'm joined today by Bill Strauss. He is a senior economist and economic advisor to the Federal Reserve Bank of Chicago. We are going to talk about the outlook for the economy and Federal Reserve's policy.

Bill, thanks for talking with me today.

Bill Strauss: Good morning, Jeremy.

Glaser: Let's talk about jobs first. We're about three-and-half years into this economic recovery. Jobs growth might be improving a little bit but still is fairly anemic. What's your take on the employment situation, and what's your outlook looking forward?

Strauss: Well, when we look at the job market, it is still a struggling market where we got unemployment rates in October that were at 7.9%, basically 8%, and it's been at 8% or higher over the recovery period. This is just not a very good outcome for the labor market. It's true we've been adding jobs but not adding in a fast enough pace to materially bring down the more than 8.7 million people who lost their jobs in the downturn.

The outlook, according to both the Fed as well as outside forecasters' views, is that growth will continue in 2013 but at a pace of activity that is improved, but still not all that impressive, something anywhere from 2.3% to maybe 2.75% growth rate around trend or slightly above trend. This will once again help with growth in the labor market but not as impressively as we would like, so that unemployment rates by the end of next year are anticipated to still be in the upper 7% range.

Glaser: So, what's the biggest drag on that? What's keeping the labor market from really gaining traction?

Strauss: Well, I think it's a vicious cycle, but I mean I think it has to do with growth of the economy, which is, again, trying to get its recovery back from the financial crisis that we went through. But in addition, we've got the world economies which are not being of a great assistance here. Many European economies are in a recession. Europe as a whole is not doing very well. Then you got Asia, which has been growing quite strongly, but its growth rates are slowing.

So, in terms of supporting our ability of exporting in a way, we need incomes around the world to do a lot better, and that's being challenged at this point in time.

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