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Thursday March 1, 2012
NEW YORK: The US economic recovery is “frustratingly slow” and it could take four to five years to ratchet the unemployment rate down to about 6%, from more than 8% now, according to a top Federal Reserve official.
The recovery is held back by the housing market and Europe's debt crisis among other headwinds, but monetary policy is now appropriately positioned to eventually achieve this “maximum employment” level, said Cleveland Fed president Sandra Pianalto.
“We do not have a good deal of concrete history for monetary policy to fit our current circumstances, but I am confident the Federal Reserve is making the most of its tools to move the economy in the right direction,” the Fed official said at an economic development meeting in Westfield Centre, Ohio.
Pianalto, a voter this year on the Fed's policy-setting panel, is a moderate dove in line with chairman Ben Bernanke's core of policymakers who have taken aggressive action to bring down unemployment, which stands at 8.3% after rising above 9% last year.
The US central bank in late 2008 slashed interest rates to near zero and has since bought US$2.3 trillion in long-term securities in an unprecedented drive to spur growth and revive the economy after the worst recession in decades.
Despite recent signs the recovery is gaining traction, including a pick-up in jobs, the overall recovery has been slow, leading to debate both within and outside the Fed over the need for additional purchases of assets such as mortgage-based bonds.
Pianalto did not tip her hand on that particular debate. Yet when asked whether she fears the growth in money supply, brought on by the Fed's aggressive actions, will translate into future inflation, Pianalto said she was not concerned.
“Inflation is a monetary phenomenon. The Federal Reserve can control the inflation rate,” she said, pointing to its newly-set explicit inflation target, of 2%, as proof of the Fed's commitment and as a reason prices will be contained.
Looking ahead, Pianalto said inflation should remain close to 2% for the next few years, and repeated her expectation for a “moderate economic recovery” with growth of about 2.5% this year and about 3% next year.
US gross domestic product grew just 1.7% in 2011 and the Fed, after a policy-setting meeting last month, said it expected GDP growth of 2.2% to 2.7% this year. Reuters
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