Market Talk

Fed chairman Ben Bernanke can talk all he wants about the strengthening US economy, but nothing can hide the fact that unemployment remains in a dire situation without much hope for a turnaround in the near future.

The notoriously bearish Nouriel Roubini penned a NY Daily News op-ed yesterday cautioning the worst is yet to come on the unemployment front. He expects job losses will continue until the end of 2010 at the earliest, unemployment will peak near 11% and will remain elevated for at least two years.

From Roubini:

In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.

He says government should pass another round of stimulus that will put people back to work sooner rather than later.

There’s really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.

Roubini isn’t the only doomsayer who’s predicting the jobs market to get even worse than it already is. Gluskin Sheff chief economist David Rosenberg predicted last week that the unemployment rate could hit as high as 12%-13%. Goldman Sachs chief economist Jan Hatzius has also said the jobless rate could reach 11%.

Double-digit unemployment alone means inflation hawks should calm down, Paul Krugman writes at Conscience of a Liberal. He believes inflation is a remote issue at the moment.

“Unemployment is high, inflation is low and the Fed has no business raising rates any time soon,” Krugman says. “This really can’t be overemphasized.”

The notion of raising rates shouldn’t even be seriously considered until unemployment reverts back to 7%, which likely won’t happen for years, he adds.

“I’d add that the Fed really should be raising its inflation target, meaning an even longer pause before it raises rates,” Krugman says. “Monetary tightening shouldn’t be on the agenda for a long, long time.”