[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> yesterday the federal reserve bank of chicago president charles evans said low interest

rates are needed for some time as high unemployment continues. his remarks are next on c-span. at the top of the hour is "washinton journal." health care insurance, the midterm elections, and lobbying, at 7:00 a.m. eastern. a couple of live events to tell you about today on our companion network c-span 3. the insurance industry group america's health insurance plan will host a health policy forum beginning at 8:00 a.m. eastern. speakers will include kathleen sebelius and panels on medicare, wellness programs, and the midterm elections. later, treasury secretary tim geithner testifies on capitol hill about his department's budget request for next year. that is at 2:00 p.m. eastern.

now the president and ceo of the federal reserve bank of chicago, charles evans. this is part of a conference hosted by the national association for business economics. it's about a half hour. >> good morning, everybody. i am bill strauss, a member of nabe's and directors. it's my pleasure to introduce today speaker. he is my colleague and my boss as well as a member. dr. charles evans, the president and ceo of the federal reserve bank of chicago. charlie and i have worked together since he joined the fed in 1991. the federal reserve bank of chicago is one of 12 regional reserve banks across the country. these 12 banks along with the board of governors in washington make up our nations' central banks. his background prepared him well for this job. before becoming president, he was a director of research at

the chicago fed, overseeing the study of monetary policy, financial markets, regional economic issues, and banking. much of his personal research has focused on measuring the effects of monetary policy on u.s. economic activity. as well as inflation and financial markets. it has been published -- he has been published in the american economic review, journal of monetary economics, quarterly journal of economics, a handbook of macroeconomics, and another journal. his academic experience includes teaching at the university of chicago, university of michigan, and university of south carolina. he gets outside the midwest. he has a bachelor's degree of economic it from the university of virginia, earned a doctorate from carnegie-mellon in pittsburgh and in many ways his entire career serves as preparation for his current responsibility, for helping

formulate monetary policy. monetary policy in the best interest of the american people. we are so happy to have with us today charlie evans. [applause] >> thank you very much. that was a very nice introduction. i appreciate that. good morning. it is a pleasure to be with you today. this year's conference and topics being discussed are of great importance to us all. regulators, policy makers, and others. we share a common interest in fostering the economic recovery after a strong to strong growth in and from its of low and stable inflation. conferences such as this one bring together diverse perspectives that will help devise solutions to achieve these goals. this morning's breakfast was another example of that. b =nabnabe is such a great organization. i wanted solids messages this morning with such an expert

audience. my speech is a little longer than usual. ipoof like to discuss a few challenging issues that the labor market presents for monetary policy making. i approach these issues not just from the perspective of a fed bank president but also as a macro economist and former fed research director. i have attended fomc meetings like in 1995. i've observed some of the conflicts firsthand that fomc members face in addressing the dual mandate to promote maximum employment and price stability even in these times. price stability is 2%. inflation as measured by the personal consumption measures over the medium term. when i became chicago fed president in 2007 i never would have guessed that my first two and a half years would have me voting continually for lower interest rates and more policy accommodation. i just would not have expected

the need for that. but with the unemployment rate at 9.7% and if inflation significantly under my benchmark for price stability, there's no conflict. why today i will highlight a number of labour market issues that lead me to think this accommodation will likely give corporate for some -- for some time. let me mention a summary of economic outlooks. i am in bereavement with the view that restricts bank credit, along with business and households will continue to strengthen the cover. these headwinds will abate as we move into 2010. most indicators of trends favorable. many households and businesses remain wary that a full-fledged recovery is in the near future.

the poem is always the last piece of a puzzle to fall into place. until the economy begins to add jobs in significant numbers, for many it will not feel like much of a recovery. the latest reports on this front have been mixed. layoffs are subsiding. firms are hiring more temporary workers. after a large decline, the average workweek is showing signs of stabilizing and perhaps reversing course. these developments usually are precursors of broader scale recovered and latent demand. today employers remain cautious. job openings are still scarce. there are few signs that permanent hiring has picked up yet. moreover, most labor markets turning the corner, it's a long way to go before they get back to what we would consider to be normal. the ongoing weakness in labor markets and memories of the jobless recoveries from the previous two recessions have raised concerns that something has fundamentally changed the

way labor markets work. some worry that they have deteriorated more than would be expected, given the declines in output during the recession and in turn the additional weakness might impinge on the speed of the recovery moving forward. headline unemployment numbers are consistent with the recession. the usual starting point for thinking about this issue is the famous law relating gross domestic product growth to the change in the un to emigrate. the usual estimate focuses on that the on of plummet rates should be a percentage point lower than the 9.7% we saw last friday. however, this calculation assumes that the association between economic activity and an atomic weight is not very across the business cycle. many in plummet indicators tend to deteriorate faster during recessions than they improved during expansion. a simple statistical model uses the historical relationship between gdp growth and

unemployment estimated only during recession can actually account for the sharp rise in the animal and a great. the first figure compares the actual unemployment -- rise in the unemploymen -- the two lines are just about gone on. the green line, the prediction from a standard model does not distinguish between behaviour and expansion during recession, not capable of capturing the current numbers. similar recession-on the models can also explain the rise in unemployment and underemployment as well as the decline in payroll employment. we did not pull this out just because it's convenient. there's a rich literature on

regime changes in macroeconomics that this begins with. so there is existing literature. based on these exercises, i think it is reasonable to conclude that the an intimate rates and employment growth is about as we would expect in a recession. other labour market measures are weaker than expected. when you look past the headline numbers, however, other labor market indicators are unusually weak. in particular, but share of adults outside the labour force has increased more and the average loan of a spell of unemployment has gone much longer than predicted by even the recession-only models. i like to spend some time elaborating on the implications of the increase in unemployment. much of this material will appear in a forthcoming article by my colleagues at the chicago fed.

the consequences of long- term unemployment on households, significant. long-term unemployment also leads to a significant loss in permanent earnings even after the worker finds a new job. unemployment duration has risen at an unprecedented rate over the past year or so. in february over 40% of the unemployed were in the midst of a spell lasting more than six months, by far the highest proportion in the post-world war ii era. you can see this in the second figure. this plots from 1948 to the