High unemployment is not a quickly resolvable problem, but April's job gains show the economic recovery is on a firmer footing, a top Federal Reserve policymaker said on Wednesday.
We've got a long way to go before labor markets can be described as healthy again, Cleveland Federal Reserve Bank President Sandra Pianalto told the Columbus Metropolitan Club.
Pianalto did not directly address 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, she 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.
This time around, even though we are once again seeing some softness we are not seeing the same reaction on the part of businesses, she said, adding she had not heard of businesses pulling back on investments and noted they are still hiring.
At its last policy-setting meeting, the Fed signaled its $600 billion bond buying program would end as planned in June, while also suggesting it was in no rush to raise interest rates. The Fed has kept interest rates at record lows near zero since December 2008.
Pianalto said she expects inflation to fall back below 2 percent in the next couple of years and that it could take about five years for the jobless rate to reach its long-run sustainable rate of 5.5 percent to 6 percent. She said she expects the economy to continue at a gradual recovery pace of just above 3 percent per year over the next few years.
Recent rises in food and energy prices mean inflation will likely be temporarily higher this year, she said. But she noted both wages and the public's long-term expectations of inflation remain subdued.
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.
She said research conducted by the Cleveland Fed suggests most of U.S. unemployment is cyclical rather than being a new normal.
The high number of unemployed persons, coupled with a growth outlook that's weaker than in past recoveries, means the adjustment back to a natural rate of unemployment will take quite some time ... but I believe it will come back, she said.
(Reporting by Kristina Cooke, Editing by Chizu Nomiyama and Kenneth Barry)