When Federal Reserve officials meet next week for their regularly scheduled policy meeting, they will be considering lots of economic data including Friday's stronger-than-expected jobs report. The unemployment rate last month fell to 7.7%, the lowest rate in four years. November payrolls rose 146,000—about 50% more than forecast.
Alice Rivlin, former vice chair of the Fed, says the jobs report is reassuring but it does not portend a change in Fed policy.
"The Fed has been communicating that it's going to continue its current policy," Rivlin tells The Daily Ticker. "It's going to buy bonds and keep a low interest rate for the foreseeable future. I don't see why this jobs number is going to influence that."
Rivlin says she would probably vote in favor of the Fed's current policy of low rates and bond purchases if she was still vice chair. But she does have doubts about it.
"I don't think [Fed policy] is dangerous….but I don't think it's doing much marginal good," she notes.
Rivlin says the problem for the U.S. economy is the partisan gridlock in Washington. The polarization among lawmakers has prevented them from doing what they need to do.
"We need to get our political house in order, make a decision about the fiscal cliff and stabilize the debt…that's the most important thing," says Rivlin, who once headed the White House Budget Office as well as the Congressional Budget Office. Once a good fiscal policy is in place, then "monetary policy can begin to retrench, as the unemployment rate comes down," Rivlin says.
In the meantime, the clock is ticking on the fiscal cliff -- i.e. when massive spending cuts and tax hikes are scheduled to take effect in the new year. Rivlin also says the debt ceiling, which has become another point of contention in Washington, should be eliminated for good.
"Get rid of the debt ceiling," she says. "It's a totally artificial thing. When you vote for spending and you vote for revenues there's an implicit debt number there, but it shouldn't be used as a hammer over the head of the president or anybody else…..the debt ceiling has nothing to do with the rising debt."
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