Study: Uncertainty adding to unemployment

Uncertainty over the nation's economic course, driven largely by Washington gridlock, has contributed at least 1 point to the nation's unemployment rate, according to a new Federal Reserve study.

A new study from the Federal Reserve Bank of San Francisco found that uncertainty skyrocketed following the financial meltdown of 2008, which in turn slowed the economic recovery and contributed to higher unemployment.

"Our model estimates that uncertainty has pushed up the U.S. unemployment rate by between one and two percentage points since the start of the financial crisis in 2008," wrote Sylvain Leduc and Zheng Lu, researchers at the regional bank. "Had there been no increase in uncertainty in the past four years, the unemployment rate would have been closer to 6% or 7% than to the 8% to 9% actually registered."

The report found that when the private sector is uncertain about future economic conditions, it tends to cut back on spending, which in turn boosts unemployment while lowering economic output and inflation.

Furthermore, the report found that uncertainty was playing a particularly damaging role during this most recent economic downturn compared to prior recessions, and speculated that it could be partly due to the fact that the Fed dropped interest rates so soon during the downturn, leaving it with few remaining tools to address economic ailments.

Economic uncertainty has been pointed to as a common challenge weighing on the laggard economic recovery. In particular, Republican lawmakers have criticized huge regulatory overhauls pushed by the Obama administration, such as the healthcare and Wall Street reform laws, as driving uncertainty and keeping businesses on the sideline.

Business groups are also banging on about the need to address uncertainty driven by public policy standoffs. A coalition of nearly 300 business groups warned Congress earlier this month that the upcoming "fiscal cliff" had heightened uncertainty and was hampering business activity.

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