Tags: Fed | Economic | Recovery | slow

Fed’s Pianalto Says Economic Recovery ‘Frustratingly Slow’

Tuesday, 10 January 2012 01:18 PM

Federal Reserve Bank of Cleveland President Sandra Pianalto said the economic recovery faces “headwinds” such as “depressed” housing markets, the sovereign debt crisis in Europe and government spending cuts.

“Despite our current accommodative monetary policy, the recovery from the recent financial and economic crisis has been frustratingly slow,” Pianalto said today in Wooster, Ohio. “Going forward, I will continue to weigh the costs and benefits of further policy actions.”

Three Fed policy makers said last week that the U.S. government should try new ways to spur the housing market to help boost growth, without agreeing about how much more the central bank needs to do to bring down interest rates. The comments underscored concerns by Fed officials that they may be reaching the limits of their power to bolster the economy.

Pianalto, who is a voting member of the policy-setting Federal Open Market Committee this year, said that she foresees “moderate” U.S. economic growth and forecast a 2.5 percent expansion in 2012 and 3 percent in 2013.

While the inflation outlook is “pretty good,” the unemployment backdrop remains “very difficult,” Pianalto said. She predicted that inflation will “dip below” 2 percent in the first six months of 2012.

The jobless rate fell to 8.5 percent in December, the lowest since February 2009, according to a Labor Department report last week. Payrolls rose by 200,000 workers, more than economists forecast.

Natural Jobless Rate

Pianalto said that it will take four to five years for the unemployment rate to fall to 6 percent, which she estimates is its natural rate.

“Sooner, of course, would be better for everyone, but I want to be on a path toward full employment that doesn’t create an inflation problem down the road,” Pianalto said. “Inflation over the longer run is primarily determined by monetary policy, whereas the maximum level of employment is largely determined by non-monetary factors that may change over time.”

Pianalto said she has “supported” the Fed’s policy decisions, and sees “evidence that they have been effective.” She said she’s “committed to moving our economy toward full employment and maintaining price stability.”

The central bank cut its benchmark interest rate almost to zero in December 2008. Chairman Ben S. Bernanke has said the Fed is considering additional actions, including a third round of large-scale asset purchases.

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Tuesday, 10 January 2012 01:18 PM
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