Fed Chairman-to-be Ben Bernanke Focused on Inflation and Jobs

Great news out of the yesterday’s Senate confirmation hearings for Ben Bernanke, the Federal Reserve Chairman to-be. In prepared his prepared remarks Bernanke vowed to stay focused on both inflation and jobs as he understands that it is “low income people who suffer most from recession [and] low-income people who suffer most from a high level of inflation.”

So why are his comments so important to those of us who help others find the best jobs available? Because many economists and economist-wanna-be’s consider battling inflation and high employment rates to be opposing forces. That is, when inflation is high, the Federal Reserve has traditionally put the brakes on the econony to try to bring down the rate of inflation. When they do that, employees are laid off as orders for new goods and services declines. Or so the traditional thinking has gone. Bernanke, while not providing any specifics, seemed to support Alan Greenspan’s approach that it is better to maintain a low to moderate rate of inflation that provides certainty in the economy. More than anything else, it is uncertainty that causes employers to hold off on hiring new employees or investing in new facilities. If they know that inflation will be three percent, they can budget for that and make the appropriate investment decisions. If inflation will be six percent, or nine, or twelve, they can budget for that and make the appropriate decisions. But when inflation bounces around, there is terrible uncertainty in the marketplace and many employers are forced to be pessimistic in their outlooks in order to ensure that they will remain in business. And it is that pessimism that leads to layoffs of employees, especially entry level and other low income employees, and the lack of new hiring, especially of entry level and other low income employees.
So a toast to Ben Bernanke and his recognition that battling inflation is not necessarily bad for employment. The key is to stay ahead of the curve and to continue the Federal Reserve’s practice of trying to maintain low to moderate inflation rather than to succumb to those who favor rapid growth in the economy, which would inevitably lead to high inflation, high interest rates, and eventually high unemployment.