Elevated Unemployment Through 2012

The New York Times reports that Fed Chairman Ben Bernanke predicts that unemployment will stay elevated for the entire term of President Barack Obama.

The chairman, Ben S. Bernanke, said Wednesday that the recovery was continuing at a modest pace, though with a “somewhat weaker outlook.”

He projected that the unemployment rate would remain well above 7 percent through the end of 2012, and the duration of President Obama’s current term. That, too, was a discouraging note to Washington incumbents facing tough re-election fights….

In presenting the Fed’s semiannual monetary policy report to Congress, Mr. Bernanke said that it would take “a significant amount of time” to restore the 8.5 million jobs lost in the United States in 2008 and 2009, and that “the economic outlook remains unusually uncertain.”

He also warned that financial conditions, particularly the European debt crisis, had “become less supportive of economic growth in recent months.”

……Minutes from the June meeting of the Federal Open Market Committee, the Fed’s main policy-making arm, indicated that a few officials had a new worry: deflation. Those officials believe that inflation — which is running at about half the Fed’s desired range of 1.7 to 2 percent — has been so low that it could turn into a dangerous spiral of falling prices like the one that has plagued Japan since the mid-1990s.

“Forecasts are very uncertain, but I don’t view deflation as a near-term risk for the United States,” Mr. Bernanke told Mr. Shelby, noting that inflation expectations had remained stable.