Fed Chair Ben Bernanke recently testified before the House of Representatives Committee on Financial Services and acknowledged the troubling employment conditions. Unemployment rate at 7.6% remains well above its longer-run normal level, and rates of underemployment and long-term unemployment are still much too high. Bernanke indicated that he would continue quantitative easing because of the unemployment figures but this method doesn’t seem to be working when you consider the lack of job growth – see graph. The U.S. Federal Reserve is currently purchasing US$85 billion of agency mortgage-backed securities and Treasury securities each month as part of its quantitative easing programme. This programme places downward pressure on long-term interest rates, and is intended to promote economic activity. However the S&P* earnings per share (eps) has grown above 70% since the bottom of the last cycle but job growth has been under 5%.
*The S&P 500® is widely regarded as the best single gauge of large cap U.S. equities. There is over USD 5.58 trillion benchmarked to the index, with index assets comprising approximately USD 1.3 trillion of this total. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalisation.