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US economic strength may not be clear for months

Reuters

A Federal Reserve official said he expects the US economy to start picking up in the second quarter.

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, and Charles Evans (left), president of the Federal Reserve Bank of Chicago, in a file photograph from May 1 2012. (Danny Moloshok, Reuters)

The US economy will probably start picking up in the second quarter towards around an annual rate of 3%, but it may not be clear for some time if it is on a sustained path, a top official at the Federal Reserve said on Sunday.           “It may not be clear for several months, or even quarters, whether the US economy is undeniably on a stronger and sustained growth path around a run rate of 3%,” Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, told a business gathering in Dubai in a prepared speech.

          Lockhart, who said he was speaking in his personal capacity, does not have a vote this year on the Fed’s policy-setting board but he participates in its discussions.

          He is considered to be near the centre of the central bank’s policy spectrum and his comments often reflect the views of the core decision-makers.

          The Fed has kept overnight interest rates near zero since late 2008 to help the US economy recover from a deep recession.

          Signs of recovery in the jobs market led the Fed to start winding down its bond-buying programme, which is aimed at pushing down borrowing costs.

Bond purchases to end
         

However, dissatisfied with the US recovery, the Fed is still adding $45-billion in bonds each month, though the purchases should end later this year.

          “I expect this programme to be completely phased out by October or December this year,” Lockhart said.

          At its last policy meeting on April 30, the Fed stuck to its assessment that the economy would need near-zero interest rates for a “considerable time” after the asset purchases ends.

          “Based on my outlook, I think that conditions in the US economy will justify beginning the process of raising rates in the latter half of 2015. Once rates begin to rise, I expect the process to normalisation of interest rates to be gradual,” Lockhart said.

          Inflation has been running just above 1% in the world’s biggest economy while unemployment, albeit falling, is still elevated at 6.3%.

          Lockhart said that he expected inflation to firm to a healthier rate over the medium term on a track to the Federal Open Market Committee’s 2% target.

          He also said that despite the decline in the unemployment rate in April, the United States apparently added jobs but lost workers.

          “So I am hesitant to take on board this decline in the unemployment rate as indisputable evidence of progress toward full employment,” he said. - Reuters

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