For the jobless rate to drop much further, Fed Chairman Ben S. Bernanke says,… (Alex Wong, Getty Images )
ARLINGTON, VA. — Federal Reserve Chairman Ben S. Bernanke, worried that recent labor market improvements could fizzle because of weak economic growth, signaled that he was poised to keep interest rates at their super-low levels and stick with the central bank's easy-money policy for some time.
Though the labor market and the economy have improved in recent months, he stressed in a speech Monday that labor-market conditions were "far from normal," noting that the number of people working is well below pre-recession levels, as is the total number of hours worked.
And he expressed concern about the unusually high number of long-term unemployed, whose skills and ability to get jobs tend to decline over time.
Some financial analysts had been speculating that the central bank might be pondering an increase in interest rates because of a strengthening of the economy. But Bernanke's comments indicated that he plans to stick with the Fed's low-interest-rate policy for the foreseeable future.
Bernanke noted that the substantial drop in the jobless rate -- to 8.3% in the first two months of this year from 9.1% last August -- was "somewhat out of sync" with the slow pace of economic activity.
"What we may be seeing now is the flip side of the fear-driven layoffs that occurred during the worst part of the recession," Bernanke said at a gathering of the National Assn. for Business Economics. He said that companies appear to "have become sufficiently confident" to hire more workers to meet expected demand.
But for the jobless rate to drop much further, he said, the nation would need "a more rapid expansion of production and demand from consumers and businesses." That, he said, argues for "continued accommodative policies" to support growth.
Wall Street cheered Bernanke's comments, with major indexes locking in gains of more than 1%.
The Dow Jones industrial average rose 1.2%, to 13,241.63. Broader indexes also gained: The Standard & Poor's 500 jumped 1.4%, to 1,416.51, and the technology-heavy Nasdaq Composite climbed 1.8%, to 3,122.57.
Investors have been buoyed by good economic news, including improvements in the unemployment rate. That has boosted the equities market, with the S&P 500 near its highest point since May 2008 and the Nasdaq rising for six straight weeks.
The Fed has pledged to keep short-term interest rates near zero until at least late 2014. But some policymakers at the central bank have questioned the wisdom of extending monetary stimulus for so long, arguing that it risks setting off inflation.
In Monday's remarks, "Bernanke made clear that the slack in the labor market is sufficient to sideline the inflation issue for the moment," Diane Swonk, chief economist at Mesirow Financial, said in a note to clients. "Ben will continue to resist and override dissenters in his own ranks to keep and perhaps even expand monetary policy accommodation."
Some economists have suggested that the unemployment figure has fallen sharply in part because many discouraged workers have simply dropped out of the labor force.
Bernanke said, however, that "a substantial portion" of the decline in the rate reflects genuine improvement in the labor market.
Some experts also argued that the Fed's low-interest policy won't help the labor market much because the main challenges involved structural problems, such as a mismatch between the skill levels of workers and the needs of employers.
But the Fed chairman made clear that he viewed insufficient demand as the main culprit for the weak labor market.
The gist of his conclusion is that "monetary policy can't solve all the unemployment problems, but it can have a significant impact," said Lynn Reaser, an economist at Point Loma Nazarene University in San Diego and past president of the business economic group.
If the unemployment problem was mostly structural, she said, the policy solutions wouldn't be monetary stimulus but things like retraining and education reform.
"If he is indeed correct that [high unemployment] is a cyclical short-term problem and that it can be corrected with continued economic growth, that's very good news for Americans worried about being trapped in long-term high joblessness," she said.
Times staff writer Joe Bel Bruno contributed to this report.