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19Aug11


Fed's Pianalto: years to lower unemployment


The economy is growing so slowly that it will take years to wrench lofty unemployment rates back to normal levels, Cleveland Federal Reserve Bank President Sandra Pianalto said on Friday.

Speaking to a community bankers' group, she said growth in 2011 was likely to be about two percent and forecast it will rise only to three percent in 2012 and 2013 -- unlikely to make much of a dent in the current 9.1 percent jobless rate.

"If we're going to dig ourselves out of the hole that we're in and begin to drive down the unemployment rate, we need even faster growth than that," she said in Columbus, Ohio.

"I think it will take quite a few years for the unemployment rate to fall to more typical levels, in the neighborhood of 5-1/2 percent," she added.

Pianalto noted that central bank policymakers, in deciding to keep official interest rates near zero until mid-2013 at their last policy session, had concluded that recovery will be slower than expected in coming quarters and that downside risks were on the rise.

Not only are incomes growing slowly in a harsh job climate, but consumer confidence is weak and other key economic sectors are in trouble.

"The housing sector remains very depressed," Pianalto said. "Home prices are still under pressure, inventories of existing homes are still very high, and foreclosures continue to be a serious national problem."

On a more positive note, Pianalto said that she thought a spike in food and energy prices this year will abate.

"I see the inflation rate stepping down from its current level over the rest of this year and into next year as well," she said, likely to an average of two percent "or a bit less" in 2012 and 2013.

[Source: Reuters, Columbus, Ohio, 19Aug11]

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