Nov. 11 (Bloomberg) -- The U.S. economy will be slow to recover from the deepest recession since the 1930s as rising unemployment curbs consumer spending, Federal Reserve officials said.

San Francisco Fed Bank President Janet Yellen raised the prospect of a “jobless recovery” in a speech in Phoenix, while Dennis Lockhart, who heads the Atlanta Fed, predicted a “relatively subdued pace of growth” this quarter and beyond.

The comments yesterday are among the first on the economic outlook since the Fed signaled last week that a return to growth alone won’t be enough to change its policy of keeping interest rates near zero for “an extended period.” Instead, the central bank said any change would depend on increases in employment and inflation.

“At some point, of course, we will have to tighten policy -- and we certainly have the means and the will to do so,” Yellen said. “Until that time comes though, we need to provide the monetary accommodation necessary to spur job creation and prevent inflation from falling any further below rates that are consistent with price stability.”

The jobless rate will exceed 10 percent through the first half of 2010, according to a monthly Bloomberg News survey of economists. The rate jumped to 10.2 percent in October, the highest level since 1983, according to a Labor Department report on Nov. 6. The economy has lost 7.3 million jobs since the recession began in December 2007.

Durable Recovery

“Now that growth has resumed, the overall objective of economic policy should be to bring about a durable recovery and an environment that reduces unemployment as quickly as possible while containing inflationary pressures,” Lockhart said yesterday in a speech in Atlanta. “The process of achieving this objective will necessarily involve judicious removal of government supports and the normalization of monetary policy.”

The Standard & Poor’s 500 Index was little changed yesterday at 1,093.01. The index has jumped 62 percent since its low for the year on March 9 as investors anticipated a recovery.

Officials last week kept their benchmark overnight lending rate in a range of zero to 0.25 percent, where it has been since December. The conditions they cited to keep it there are “low rates of resource utilization, subdued inflation trends, and stable inflation expectations.”

Lockhart, speaking to reporters after his speech, said the conditions listed weren’t “exhaustive.”

“Certainly, there are scenarios in which the unemployment rate might still be at a frustratingly high level and might not have moved much, in which still the overall conditions in the economy would justify beginning to tighten,” he said. “I wouldn’t focus on unemployment or employment alone.”

Rates, Unemployment

In every monetary policy tightening cycle since World War II, the central bank hasn’t begun to raise interest rates until the unemployment rate has started to decline, Joseph LaVorgna, an economist at Deutsche Bank Securities Inc., said in a Nov. 6 research note.

The world’s largest economy expanded at a 3.5 percent pace from July through September, spurred by government incentives that enabled consumers to spend more on homes and cars. The economy will expand at a 3 percent rate in the final three months of the year, according to the median of 64 forecasts in the Bloomberg News survey of economists this month.

The Fed’s preferred measure of inflation, the personal consumption expenditures price index minus food and energy, is rising at a level that’s below the 2 percent regarded as consistent with price stability, Yellen said. Core inflation will probably “move even lower over the next few years,” Yellen said.

Inflation May Persist

Dallas Fed President Richard Fisher said growth and inflation may persist below ideal levels into 2011, making the central bank’s current interest-rate stance “appropriate.”

“Looking into 2010 and perhaps to 2011, the most likely outcome is for growth to be suboptimal, unemployment to remain a vexing problem and inflation to remain subdued,” Fisher said in a speech in Austin, Texas.

Boston Fed President Eric Rosengren, speaking yesterday in London, echoed that comment.

“The appropriate time is to raise rates when that’s necessary to get us back on a path to inflation and unemployment in a range that we are more comfortable with,” he said. “And I’d say we’re not there.”

Economic growth will be “uneven across sectors” with commercial real estate serving as a drag while manufacturing, trade, and consumption expand, Richmond Fed President Jeffrey Lacker said.

“Consumers are going to gradually expand spending next year,” he said in an interview with CNBC. “I think we’ve hit bottom with consumer spending.”

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net; Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

Last Updated: November 11, 2009 00:00 EST