The Federal Reserve's long-delayed decision to start pulling back from its multi-trillion-dollar stimulus program was filled with self-doubts about the still-shaky Obama economy.
The news headlines that followed its announcement on Wednesday said the "Fed will begin easing stimulus." Behind its decision, though, were insecure caveats that the nation's central bank remains ready to inject further stimulus if the economic data in the months to come showed persistent weaknesses in the job market.
As if to reassure Congress and the administration that the sluggish economy still isn't ready to go solo any time soon, Fed Chairman Ben S. Bernanke made this cautionary promise: "Asset purchases remain a useful tool that we will deploy as needed to meet our objectives."
Thus, the Fed said it will begin winding down its bond-buying stimulus program tentatively and slowly. It will cut back its purchases of mortgage-backed securities and Treasury bonds from $85 billion a month to $75 billion. Mr. Bernanke cautioned that he's prepared to stop the winding-down process temporarily, and skip "a meeting or two" if circumstances warranted.
A further sign of the Fed's caution was its decision to hold short-term interest rates at near zero. The Fed said the board of governors doesn't expect to consider raising its rates at least until 2015, and three members said any future hike wouldn't happen until 2016, at the earliest. This alone suggests the Fed is operating on a hope and a prayer that the economy is going to continue to improve under President Obama, but they're not willing to bet the farm on it just yet. Mr. Bernanke has been burned before when he thought the economy was on the mend, only to see it turn in slower job numbers and growth rates than he had forecast.
While the economy added 203,000 jobs in November, pushing the unemployment rate down to 7 percent, other data showed persistent weaknesses. The truth is that the unemployment rate's decline last month "was driven more by a shrinking workforce than a pickup in hiring," writes The Washington Post's economic analyst Ylan Q. Mui.
The nation's once-mighty workforce has been steadily declining for several years now because of the long-term unemployed, who say they've stopped looking for a job and are no longer counted by the government as among the unemployed. Thousands of Americans are still losing their jobs each month. It didn't get much media attention, but initial unemployment claims in the first week of December shot up to 368,000, an increase of 68,000. The total number claiming benefits in all of the states' unemployment-compensation programs was close to 4 million at the end of last month. This is still an economy that isn't operating on all cylinders.
The Fed's board was virtually united behind Mr. Bernanke's decision, voting 9 to 1 to begin easing its stimulus next month. Only Boston Fed President Eric Rosengren cast a dissenting vote, saying that any such action right now was "premature."
There's new evidence the American people apparently agree with Mr. Rosengren's cautionary assessment.
A Gallup Poll asked Americans last week what they thought was "the most important problem facing this country today." The economy and unemployment were among their top four concerns. No. 1 on the list was "dissatisfaction with government," which presumably means Americans are dissatisfied that the government isn't doing nearly enough to strengthen the economy.
Don't be fooled into thinking that unemployment is going down as the administration claims. The Department of Labor's latest 7 percent unemployment rate is the result of a nationwide, monthly survey that was under a cloud of suspicion owing to a newspaper report that said some of the poll responses were fabricated.
Gallup conducts similar surveys and its latest poll finds the unemployment rate is nearly 8 percent. Moreover, 17.3 percent of Americans told them they were forced to take part-time work when they needed, but could not find, full-time employment. This group makes up a growing class of the "underemployed."
"The situation remains particularly tough for recent college graduates and older Americans," says University of Maryland economist Peter Morici. "Adding part-timers who want full-time employment and discouraged adults, the unemployment rate becomes 13.2 percent."
The Fed is signaling its intention to scale back the stimulus program. It says the economy will grow at a modest rate next year, somewhere between 2.8 and 3.2 percent, and forecasts a jobless rate in the 6 percent range.
The Fed's rosy predictions have been way off-target in the past. Far more sober forecasters foresee continuing sluggishness to modest growth in the absence of a fiscal stimulus policy by Congress. "Overall growth will be between 1 [percent] and 2 percent in the fourth quarter and then strengthen to 2.5 [percent] to 3 percent in 2014. However, hiring will likely continue at its present pace or improve only moderately. Good-paying jobs will continue to be scarce," Mr. Morici says.
The Fed's stimulus program will be analyzed for years to come, but so far, it has accomplished relatively little in terms of stronger growth and job creation. Now it has trillions of dollars in debt securities that it must sell over time, a process that poses its own financial risks to our economy.
Meantime, our economy remains sorely in need of a strong pro-job, pro-capital investment, pro-growth tax-reform policy. That's not going to happen as long as Barack Obama is president and Congress remains politically divided.
Donald Lambro is a syndicated columnist and contributor to The Washington Times.