Bloomberg: US economy - Unemployment Confronts Obama Rhetoric With Chronic Joblessness - Rich Miller

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US economy - Unemployment Confronts Obama Rhetoric With Chronic Joblessness - Rich Miller

Economists since the mid-1990s have reckoned that full employment was equivalent to about a 5 percent unemployment rate, taking into account the time required to switch jobs. Now Nobel Prize winner Edmund Phelps and Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian say the fallout from the deepest recession in more than five decades is driving the so-called natural rate higher, perhaps to 7 percent. “We are in the midst of a large and protracted increase in both actual unemployment and its natural rate,” said El-Erian, 51, whose Newport, California-based company manages the world’s largest bond fund. Even with the economy growing, “it will take at least a couple of years” for joblessness to fall to 7 percent from 9.7 percent now. That may keep the federal budget deficit near a record $1.6 trillion into next year and might prevent the Federal Reserve from raising interest rates in 2010, said Bruce Kasman, chief economist at New York-based JPMorgan Chase & Co., the second- largest U.S. bank. Economists since the mid-1990s have reckoned that full employment was equivalent to about a 5 percent unemployment rate, taking into account the time required to switch jobs. Now Nobel Prize winner Edmund Phelps and Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian say the fallout from the deepest recession in more than five decades is driving the so-called natural rate higher, perhaps to 7 percent.

“We are in the midst of a large and protracted increase in both actual unemployment and its natural rate,” said El-Erian, 51, whose Newport, California-based company manages the world’s largest bond fund. Even with the economy growing, “it will take at least a couple of years” for joblessness to fall to 7 percent from 9.7 percent now. That may keep the federal budget deficit near a record $1.6 trillion into next year and might prevent the Federal Reserve from raising interest rates in 2010, said Bruce Kasman, chief economist at New York-based JPMorgan Chase & Co., the second- largest U.S. bank.