Unacceptably high unemployment and well-contained inflation make it likely that US monetary policy will remain accommodative for at least several months more, a top US Federal Reserve official said today.
Speaking to reporters in Shanghai, Chicago Federal Reserve Bank president Charles Evans said he strongly supported maintaining the current loose monetary stance as long as inflation remained under control.
"I'm hopeful that businesses will be surprised by the strength of demand over the next year and that they will actually begin to add workers, but it is quite a cautionary prospect for the US and that leads me to think that monetary policy is likely to continue to be accommodative for an extended period of time," he said.
The US central bank reiterated at its March policy-setting meeting that it would keep interest rates extraordinarily low for an "extended period" - a phrase that Mr Evans said he took to cover 3-4 meetings of the rate-setting Federal Open Market Committee.
As the FOMC meets about every six weeks, that would mean about six months, said Mr Evans, who is not a voter on the panel this year.
He said he expected economic conditions to warrant substantial monetary accommodation for the rest of 2010. Unemployment would continue to be high and "unacceptable' for a period of time.
His comments broadly chimed with remarks yesterday by Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, who also offered a lukewarm assessment of the US economic recovery.
Mr Lockhart said ultra low interest rates were appropriate and cautioned against removing the phrase "extended period" too soon for fear of sending the wrong signal to markets.
Mr Evans said the Fed would look at how the economy and job market are doing and whether inflation can be contained when deciding whether to wind back its ultra-loose stimulus.
But Fed policy would remain accommodative even when short-term interest rates start to rise and the central bank's balance sheet, bloated by asset purchases to counter the credit crunch, starts to shrink.
Mr Evans estimated that maximum sustainable growth in the United States would entail unemployment of about 5 per cent, compared with 9.7 per cent in February, and core inflation of about 2 per cent, compared with 1.3 per cent in the year to February.
Mr Evans made no substantive comments on the yuan's exchange rate, a source of intense friction between the United States and China.
Reuters
