MacroScope

The Great Recession set the U.S. labor market so far back that there is still a long way to go before policymakers can claim victory and point to a true return to healthy conditions, a top former Fed economist said. The U.S. economy remains around 3 million jobs short of its pre-recession levels, and that’s without accounting for population growth.

“The goal line is still a long ways off,” David Stockton, former head of economic research at theU.S.central bank’s powerful Washington-based board, told an event sponsored by the Peterson Institute for International Economics. He sees the American economy improving this year, but believes the recovery will continue to have its ups and downs.

A lot of people have been quite excited about some of the recent strength in the labor market. It’s encouraging but I don’t think we’ve yet seen any clear break out and I don’t think we’re going to for a while.  […]

It’s just too soon to view this as signs that we’ve cleared had a turning point in the U.S. labor market.

In particular, he says the impact of recent belt tightening in Washington should not be underestimated:

A panel of economic luminaries took the stage in Chicago this afternoon to join in a tradition repeated this time of the year in cities across the country, opining on the outlook for the coming year.

Raghuram Rajan, a finance professor at University of Chicago’s Booth School of Business, began with a joke involving 973 sheep and a dog, the butt of which was the intellectual capacity of economic forecasters. He went on to predict slow world growth ahead, highlighting the geopolitical risks from conflict in the Middle East and Asia, and the limits of fiscal and monetary policy to turn things around.

Carl Tannenbaum, Northern Trust’s chief economist, focused on the still-troubled housing market and risks posed by the failure of European political leaders to resolve their financial crisis (he observed that Americans frustrated by the deadlock in Washington over resolving the U.S. fiscal cliff have only to look across the Atlantic for comfort that things, certainly, could be worse).

When it comes to predicting a dark future, Nouriel Roubini – the NYU economist who earned the moniker Dr. Doom after he correctly predicted the financial crisis – is not about to let anyone get in his way.

Even if it’s his host. And even, or maybe especially, when there are 500 witnesses.

That’s precisely what happened Wednesday morning, when Michael Milken – the former junk-bond king – shared the stage with Roubini at Milken’s Global Conference. What was billed as an interview in one of the Beverly Hilton’s grand ballrooms had the feel of a pitched battle.

Federal Reserve Chairman Ben Bernanke’s verdict on the U.S. economy is sobering. Boiled down, this was the message delivered at his news conference today:

Brace for roughly three more years of sluggish growth – or longer Some of the unemployed will not find work in the foreseeable future America’s economic power has downshifted Global financial markets could upend recovery yet again

It is a bleak outlook. Bernanke has left little doubt that he sees the United States in the midst of very long and painful period of sub-par growth, dousing some of the optimism stirred by recent reports that showed unemployment falling, the housing market hitting bottom and businesses starting to spend again.

Conditions could worsen, especially if the European crisis deepens and tips the world back into recession as the IMF warned this week. Bernanke said the central bank is ready to pump even more cash into the economy to keep it afloat if necessary. And by formally announcing for the first time that the central bank has inflation target of keeping prices at 2 percent, Bernanke has bought himself the leeway to provide extra support to growth without stoking inflationary fears.