Chicago Fed chief sees 10.5 percent U.S. jobless peak: report

PARIS Mon Nov 23, 2009 4:10am EST

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PARIS (Reuters) - Chicago Federal Reserve President Charles Evans expects U.S. unemployment to peak at around 10.5 percent next spring and hopefully easing to about 9.5 percent by end-2010, according to comments published on Monday.

"The best guess would be that we will probably plateau in the spring," the Financial Times quoted him as saying.

"I would expect that we'll level off and have the same unemployment rate for a few months probably, before it starts to come down. And it might even go up and down for a couple of months."

Evans had been "a little surprised" by recent data showing unemployment at 10.2 percent and nudged his own expectations a little higher as a result, the newspaper said.

"Hopefully, by the summer we'll see that the unemployment rate has peaked and begun to decline," he said, with a drop to about 9.5 percent by the end of the year.

More broadly, Evans believed the first half of next year "could be a little uneven" for the economy.

"The second half of 2010 I think will be a period where the expansion is really beginning to pick up," he said. "I think the private sector will pick up more steam and the recovery will really be taking hold," he was quoted as saying.

Evans expected core inflation excluding food and energy of about 1.3 per cent next year and "then for it to stay in the (region of) 1.5 per cent for a couple of years."

"If you pushed me hard I would say that the risks are somewhat to the downside on inflation," he said.

But there was a "significant probability mass that it could move up as well," the newspaper quoted him as having said.

The Fed had been obliged to run very stimulative policy to fight the crisis, he said.

"Obviously if that were not reversed in a timely fashion, if the inflation expectations began to increase, you can see how some risk would begin to emerge."

The current outlook suggested the Fed should keep rates near zero for an extended period.

"I think that's easily into 2010 and frankly I wouldn't be surprised if that doesn't translate into at least the middle of 2010," with the first rate increase coming in "late 2010, perhaps later in terms of 2011," the newspaper quoted Evans as saying.

(Editing by Mike Peacock)

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