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Rosengren: Unemployment, fears over Europe impact the recovery

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America's inability to create jobs at a faster pace is slowing down the nation's economic recovery, Boston Federal Reserve Bank Chairman and CEO Eric Rosengren said Monday.

Rosengren in prepared remarks before The Sasin Bangkok Forum in Bangkok said data from the U.S. and China already shows a slowdown in economic growth. Meanwhile, he noted that Europe is already in recession.

"Consistent with that forecast, the Federal Open Market Committee (FOMC) participants now expect little improvement over the remainder of the year in the unemployment rate from its current level of 8.2%. In terms of inflation, the expectation is that personal consumption expenditure inflation will be well below our target of 2% — with lower oil and commodity prices, a stronger dollar and very subdued labor costs all contributing to the lower inflation estimate."

Rosengren says low hiring activity is hurting the overall economy, and he believes companies fearing the impact of Europe's financial crisis will delay hiring until they feel more certain about the global economy.   

"The slowdown in employment growth not only hinders our ability to get to full employment, but also weakens the consumer side of the economy even more, going forward," said Rosengren. "This suggests a self-fulfilling dynamic at work as concern over a potentially significant slowdown in the future reduces current growth, as firms invest less capital and hire fewer workers than they would in the absence of these uncertainties."

While Rosengren credits central bank activity for dealing with risks in the global financial system, he warned that a financial crisis in Europe could send the U.S. economy into chaos due to the interconnectivity of big banks.

"Given global employment and fiscal challenges, the global economy remains quite vulnerable to financial shocks," he explained. "This vulnerability highlights why it is particularly important at this time to reduce the probability, and mitigate the severity, of any potential financial shock."


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