Fed Chairman Says Jobless Rate Could Remain High for Years

The nation's unemployment rate, which has been over 9 percent for a record 19 months, is not likely to return to "a more normal unemployment rate" of about 5 percent or 6 percent for four or five years, Federal Reserve Chairman Ben Bernanke said in an interview with the CBS News program "60 Minutes" broadcast on Sunday night.

Bernanke granted the unusual interview, he told "60 Minutes," because he is concerned that his critics do not recognize the severity of the current economic problems.

Last month the Federal Reserve announced that it would pump $600 billion into the banking system in an effort to hold down long-term interest rates by buying government bonds. That unleashed a torrent of criticism.

Speaking about unemployment, Bernanke said: "Between the peak and the end of last year, we lost eight-and-a-half million jobs. We've only gotten about a million of them back so far. And that doesn't even account the new people coming into the labor force. At the rate we're going, it could be four, five years before we are back to a more normal unemployment rate. Somewhere in the vicinity of say 5 or 6 percent."

He added that he was particularly concerned about the number of people who have been unemployed for six months or longer because it makes it even more difficult for them to re-enter the work place. Their skills have eroded, he said, adding, "Their attachment to the labor force diminishes and it may be a very, very long time before they find themselves back in a normal working position."

In addition, there is a growing gap among people based on education, Bernanke said. "It's a very bad development," he said. "It's creating two societies."

He added: "If you're a college graduate, unemployment is 5 percent. If you're a high school graduate, it's 10 percent or more. It's a very big difference. It leads to an unequal society and a society which doesn't have the cohesion that we'd like to see."

The Fed chairman declined to say whether he thought Congress should vote to extend the Bush-era tax cuts, an action that could lead to increased budget deficits. But he did emphasize that the federal deficit will have to be addressed. "We're looking at 10, 15, 20 years from now, a situation where almost the entire federal budget will be spent on Medicare, Medicaid, Social Security, and interest on the debt," he said. "There won't be any money left for the military or for any other services the government provides. We can only address those issues if we think about them now."

One way to make the economy grow, Bernanke said, would be for Congress to "clean up" the tax code. "By closing loopholes and lowering rates, you could increase the efficiency of the tax code and create more incentives for people to invest," he said.

As to whether there will be a "double-dip" recession, Bernanke said he did not expect that to occur. "Some of the most cyclical parts of the economy, like housing, for example, are already very weak," he said. "And they can't get much weaker. And so another decline is relatively unlikely. Now, that being said, I think a very high unemployment rate for a protracted period of time, which makes consumers, households less confident, more worried about the future, I think that's the primary source of risk that we might have another slowdown in the economy."

Over the long term, the Fed chairman said, he has confidence in the U.S. economy. "We have an excellent record in terms of innovation," Bernanke said. "We have great universities that are involved in technological change and progress. We have an entrepreneurial culture, much more than almost any other country. So, I think that in the longer term the United States will retain its leading position in the world. But again, we gotta get there. And we have some very difficult challenges over the next few years."