Federal Reserve Bank of Cleveland President Sandra Pianalto said depressed housing markets and fiscal austerity are impeding the economy, making it likely growth will be 2.5 percent in 2012 and 3 percent next year.
“Given this outlook for economic growth, it could take as long as four to five years to achieve maximum employment, which I estimate to be consistent with an unemployment rate of about 6 percent,” Pianalto said today in a speech in Westfield Center, Ohio. “The recovery from the recent financial and economic crisis has been frustratingly slow.”
The policy-setting Federal Open Market Committee said last month it plans to hold the main interest rate near zero through at least late 2014 to reduce an unemployment rate that has been stuck above 8 percent for the past three years. Monetary policy at the moment is “appropriately positioned” to keep prices stable and support the economic recovery, said Pianalto, who is a voting member of the FOMC this year.
U.S. stocks rose today, sending the Dow Jones Industrial Average to its first close above 13,000 since 2008 on growing signs that the economy is gaining traction. The Dow added 23.61 points, or 0.2 percent, to 13,005.12.
The Conference Board’s consumer confidence index increased in February to the highest level in a year, data showed today, signaling households may be able to continue spending as employment prospects improve. Jobless claims held at a four-year low of 351,000 in the week ended Feb. 18, Labor Department reported last week.
Speaking to the Medina County Economic Development Corporation, the Cleveland Fed chief devoted most of her speech today to Ohio’s economy.
“Despite our region’s relatively stronger performance than the nation as a whole during this recovery, we cannot pat ourselves on the back and relax,” Pianalto said. “We need to take a longer view and focus on the factors that drive sustainable economic growth.”
In response to a question from the audience, Pianalto said the Fed’s pledge to keep the main interest rate low through at least late 2014 isn’t a set commitment.
“It is our best thinking” that “works off of our economic outlook,” she said. ‘If that outlook were to change significantly, then our monetary policy stance could also change.”
The Cleveland Fed President said the outlook for inflation is “a little more encouraging,” with prices gains likely to remain close to 2 percent “for the next few years.”
“Still, the recent increases in oil prices and housing rents could complicate the inflation picture if they persist,” she said. “I’m not concerned that growth in the money supply is going to translate into future inflation.”
Pianalto, 57, first joined the Cleveland Fed in 1983 as an economist and became president of the district bank in 2003.