Study: Uncertainty adding to unemployment


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.