Unemployment is likely to stay high for a long time, two Federal Reserve officials said on Wednesday, suggesting the U.S. central bank is in no rush to raise its ultra-low interest-rate policy.
The dovish comments, from Chicago Federal Reserve President Charles Evans and Federal Reserve Governor Elizabeth Duke, came two days before a government report expected to show that U.S. non-farm payrolls fell in June. If that occurs, June will mark the first decline in monthly non-farm payrolls this year.
The Chicago Fed's Evans said the economic recovery is definitely on, with growth expected at 3.5 percent this year.
But inflation is dropping, and he expects it to run below his guideline of 2 percent for the next three years or more.
Meanwhile, unemployment is at 9.7 percent, and it's going to be a number of years before it's going to get down to any type of rate that we might almost say is acceptable, he said in a rare 30-minute live interview on CNBC.
Taken together, low inflation and high unemployment mean that the Fed's current accommodative monetary policy is still needed, he said.
The Fed cut interest rates to near zero in December 2008 to help reverse the worst economic downturn in decades, and pumped more than $1 trillion into the financial system with purchases of mortgage-backed assets. Last week, it reiterated a vow to keep interest rates low for an extended period.
The Chicago Fed's Evans said we have provided a tremendous amount of accommodation.
I'm going to be looking at the circumstances, and if we need to adjust policy in either direction, I am going to be responding, he added.
FED'S FOCUS: ECONOMIC RECOVERY
Fed Board Governor Duke also struck a dovish tone on Wednesday, saying the U.S. job market will likely recover only slowly in a sluggish economic rebound.
At that speed of recovery, you are not going to create jobs very quickly, she said, in response to questions at a banking conference in Columbus, Ohio. It is going to be, I think, a long period for jobs to recover.
The most important step policy-makers can take to improve credit availability to businesses and households is to achieve a sustainable economic recovery, she said.
The Fed has acted forcefully to institute accommodative policy, Duke said.
Duke is a voting member of the Fed's policy-setting Federal Open Market Committee, which next meets in mid-August.
Evans is not a voting member of the FOMC this year.
Although the financial crisis is subsiding, Duke said lending has not recovered.
As economic activity picks up and the outlook brightens, supply and demand of credit are likely to improve, she said. Still it may be years before lending returns to pre-crisis levels.
Futures traders are not pricing in any interest-rate hikes this year, and don't see odds for an increase in short-term lending rates rise above even until after the FOMC's meeting in March next year.
Within the Fed, Evans said, some of the most contentious debates center around the outlook for inflation, with some worried about the prospect of prices rising too fast, and others worried about a slowdown in price increases known as disinflation.
Evans defended the U.S. government's giant fiscal stimulus package last year, saying it was effective in turning around both the economy and the psychology.
Providing more stimulus at this point in the recovery would be pretty tough he said.
Europe's debt woes pose a risk to U.S. growth, and businesses in the United States are still are responding to replacement demand rather than the expansionary demand needed to boost economic growth, Evans said.
(With reporting by Jim Leckrone in Columbus, Ohio, and Mark Felsenthal in Washington; Writing by Ann Saphir; Editing by Jan Paschal)