The U.S. economic recovery is under way and policymakers should now focus on ensuring it is a durable one, a top Federal Reserve official said on Tuesday.
Now that growth has resumed, the overall objective of economic policy should be to bring about a durable recovery and an environment that reduces unemployment as quickly as possible while containing inflationary pressures, Dennis Lockhart, president of the Atlanta Fed, said in remarks prepared for delivery to an Urban Land Institute conference in Atlanta.
Lockhart, a voter on the policy-setting Federal Open Market Committee (FOMC) this year, said that achieving these objectives will necessarily involve judicious removal of government supports and the normalization of monetary policy.
The Fed cut interest rates to near zero last December and has pumped more than $1 trillion into the economy to tame a severe financial crisis and the deepest recession since the 1930s.
The economy has unofficially emerged from recession, with gross domestic product growth of 3.5 percent in the third quarter. But the jobs picture remains dismal, with the unemployment rate surging to 10.2 percent in October.
Lockhart said he expects the pace of growth to be relatively subdued in the medium-term. He cautioned that while there are signs of improvement, data has been quite mixed and the recovery has been supported by temporary government programs.
Lockhart also said policymakers should take into account trends in the ailing commercial real estate sector, as its problems could suppress the pace of the recovery.
A worry, he said, is the link between bank lending, small business employment and commercial real estate values.
However, he said he does not think commercial real estate's woes pose a broad risk to the financial system.
As the recovery develops, the CRE problem will be a headwind, but not a show stopper, in my view, he said.
(Reporting by Kristina Cooke; Editing by Andrea Ricci)