38. On May 5, 2009, in front of the Joint Economic Committee, you said the following

about the unemployment rate: “Currently, we don’t think it will get to 10 percent. Our

current number is somewhere in the 9s” . In November it hit 10.2%, and many economists

predict it will go even higher. This is happening despite enormous fiscal and monetary

stimulus that you previously said would help create jobs. What happened after your JEC

testimony in May that caused your prediction to miss the mark?

At the time of my testimony before the JEC, the central tendency of the projections made by

FOMC participants was for real GDP to fall between 1.3 and 2.0 percent over the four quarters

of 2009 and for the unemployment rate to average between 9.2 and 9.6 percent in the fourth

quarter. As it turned out, we were too pessimistic about the overall decline in real GDP this year

and too optimistic about the extent of the rise in the unemployment rate. Although we indicated

in the minutes from the April FOMC meeting that we saw the risks to the unemployment rate as

tilted to the upside, we underestimated the extent to which employers were able to continue to

reduce their work forces even after they began to increase production again. These additional

job reductions have contributed to surprisingly large gains in productivity in recent quarters and

to the unexpectedly steep rise in the unemployment rate.