Federal Reserve Bank of Cleveland President Sandra Pianalto said the U.S. economy is gradually improving and will probably grow at 2.5 percent this year and around 3 percent next year.
“I am seeing more evidence that our economic expansion is becoming self-sustaining,” Pianalto, a voting member on the policy-setting Federal Open Market Committee, said today in a speech in Marietta, Ohio. “Labor market information has been promising over the past few months.”
A recovery in the labor market is signaling that the economic recovery is gaining strength. Employers probably added 203,000 jobs in March, according to the median of 72 estimates in a Bloomberg survey, after February’s report showed that companies hired 227,000 workers in February to cap the best six months of gains since 2006.
Still, the world’s largest economy faces “some headwinds,” and because of its gradual pace of growth “could take as long as four or five years for the unemployment rate to fall to the 6 percent rate that I judge to be consistent with maximum employment,” Pianalto said to the Economic Roundtable of the Ohio Valley.
“Uncertainty remains,” with businesses and households cautious about the future and strains in European financial markets from the region’s debt crisis posing “downside risks,” she said.
Also, “housing markets are still in distress throughout much of the country, state and local governments are still in the process of adjusting to budget pressures and rising gasoline prices are likely to restrain household spending,” she said.
The Standard & Poor’s 500 Index approached a four-year high, climbing 0.8 percent to 1,420.28 as of 1:28 p.m. New York time. The 10-year U.S. Treasury yield declined three basis points, or 0.03 percentage point, to 2.18 percent.
U.S. gross domestic product expanded at a 3 percent annual rate in the last three months of 2011, revised figures showed March 29. Consumer confidence last month reached the second-highest level in four years as more Americans said it was a good time to shop, according to the Bloomberg Consumer Comfort Index.
The inflation rate is likely to remain close to the Fed’s target of 2 percent during “the next few years,” Pianalto said.
Pianalto said in response to a question from the audience that while she gives the Fed “a good grade” on meeting its target for controlling inflation, meeting the Fed’s objective for maximum employment will take longer.
“We have to have faster growth to keep whittling away at this very high unemployment rate that we currently have,” Pianalto said. “I believe we are on the right path of continued, although gradual, economic growth, that will continue to lead to employment growth. But it’s just going to be a more gradual pace.”
Pianalto, 57, has been president of the Cleveland Fed since 2003 and first joined the regional bank in 1983 as an economist in the research department.