NEW YORK – The Federal Reserve’s monetary policy is “appropriate in this economic environment,” supporting recovery and keeping inflation in check, according to Federal Reserve Bank of Cleveland President Sandra Pianalto.
Inflation, while running a little high due to higher commodity and energy prices earlier this year, should return to the desired 2%, she told the Rotary Club of Lexington, according to prepared text released by the Fed.
Still, “unemployment remains stubbornly high,” Pinalto noted, adding, “I think it could take a quite a few years for the unemployment rate to fall to the neighborhood of 6%, which corresponds with my current estimate of what we will see when the economy attains a state of maximum sustainable employment growth. It would be great if we could attain this outcome sooner, but I don't expect overall economic growth to be strong enough to pull the unemployment rate down faster.”
Among the factors holding back growth, Pianalto cited: reduced government spending and employment, depressed housing markets, the European economic woes, and uncertainty.
“Uncertainty is clearly an important factor, but businesses leaders tell me that weak demand is the primary reason they are not hiring new workers or expanding their businesses,” Pianalto added.
A “far from ordinary” recession caused “severe losses in wealth, output, and jobs. Households have been stressed and are doing what they can to improve their balance sheets by paying down debt and saving more. While this is a positive development in the long run, it does restrain growth in the short run,” she said.
While monetary policy has played a role in the recovery, it “alone cannot cure all of the economy's ills.” Pianalto added, “our economy would benefit from policies that help distressed households and from policies that give businesses greater clarity about taxes and regulations.”
