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By Kristina Cooke
June 2, 2011 1:14 AM EDT
The high unemployment rate means the Fed's ultra-easy money policies remain the right course of action, two Federal Reserve officials said on Wednesday.
High unemployment is not a "quickly resolvable problem," but April's job gains show that the economic recovery is on a firmer footing, Cleveland Fed President Sandra Pianalto said.
"We've got a long way to go before labor markets can be described as healthy again," Pianalto told the Columbus Metropolitan Club.
Recent rises in food and energy prices mean inflation will likely be temporarily higher this year, she said. But both wages and the public's long-term expectations of inflation remain subdued, she noted.
Given that backdrop, she said, current monetary policy is appropriate. Pianalto's views tend to hew closely to those of Chairman Ben Bernanke and the center of the Fed's policy-setting committee.
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Fed Vice Chair Janet Yellen similarly endorsed the Fed's stance of promising to hold rates near zero for an extended period as it completes $600 billion of bond purchases by the end of June.
"The current accommodative stance of U.S. monetary policy continues to be appropriate because the unemployment rate remains elevated and inflation is expected to remain subdued over the medium run," she said in a speech on assessing potential financial imbalances to a conference in Tokyo.
Once complete, the U.S. central bank's two rounds of asset purchases will boost GDP by about 3 percent and add about 3 million jobs by the second half of next year, San Francisco Federal Reserve Bank president John Williams said in a speech at the regional bank's headquarters. They also probably kept the United States from falling into deflation, he said.
"Of course, once the economy improves sufficiently, the Fed will need to raise interest rates to keep the economy from overheating and excessive inflation from emerging," said Williams, who has his first vote on the Fed's policy-setting committee next year.
The Fed can do so, he said, by raising the interest it pays on excess bank reserves along with its short-term interest-rate target, and by reducing its long-term securities holdings.
None of the three directly addressed Wednesday's weak data, which showed U.S. companies hired far fewer workers than expected in May, and instead focused on April's closely watched non-farm payrolls report. The jobs report for May is due from the Labor Department on Friday, and economists on Wednesday were cutting their forecasts for employment growth.
"Recent gains in the labor market suggest that the economy is on (a) firmer footing and that the recovery is likely to continue. However, growth may be frustratingly slow at times," Pianalto said.
Recent weak data has raised concerns that the U.S. recovery is running out of steam.
But in a response to an audience question, Pianalto said she is less worried about the recent economic soft patch because business confidence appears to be holding up better than this time last year, when the European sovereign debt crisis slowed the U.S. recovery.
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