CORRECTED-Monetary policy not a cure for unemployment -Fed's George

Mon Jul 16, 2012 11:41pm EDT

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(Fixes dateline to Kansas City)

* U.S. economic growth not seen exceeding 2 pct in 2012

* Labor market weighing on household spending

By Christine Stebbins

KANSAS CITY, Mo., July 16 (Reuters) - A top Federal Reserve policymaker said on Monday that while persistently high unemployment is weighing on the sluggish U.S. economic recovery, she is not sure monetary policy can put people back to work.

"At this point we have a tremendously accommodative policy for the economy to begin the process of recovery," Kansas City Federal Reserve President Esther George said in introductory remarks at a conference on agriculture. "Will monetary policy put people back to work at this point? That's not clear."

George will be a voter on the Fed's policy-setting Federal Open Market Committee in 2013. She declined to say whether she thinks the central bank should deliver another dose of monetary stimulus to help the economy grow more vigorously.

"When I get to January, you'll read in the papers where I come out," she said in response to a question.

But George made clear she believes labor markets are currently too weak to generate improvements in growth or spending.

"The unemployment rate although it has fallen noticeably over the last year remains well over 8 percent. That is too high at this point to generate the kind spending that we would normally expect to see," she said.

"Monthly payroll gains as we saw last month around 80,000 are not robust enough yet at this point to generate the kind of growth that we would want to see in the economy," George added.

The jobless rate held steady at a lofty 8.2 percent in June. The economy needs job growth of around 125,000 a month to keep pace with growth in the working age population.

However, job growth averaged 75,000 per month in the second quarter compared to 226,000 in the first three months of the year.

George said the economy is growing, but slowly. She said she does not expect growth to exceed a 2 percent annual rate this year. That would put her at the low end of Fed officials, whose forecast for 2012 growth were concentrated between 1.9 percent and 2.4 percent.

The Fed cut rates to near zero in December 2008 and has bought $2.3 trillion in bonds to pull the economy out of a deep recession and bolster a shallow recovery. As the recovery has failed to gain momentum, policymakers have promised conditionally to hold rates at rock-bottom levels at least through late 2014 and extended the average maturity of Fed bond holdings to push down longer-term rates.

Recent job market and other data show signs the recovery is fading again, and many analysts expect the central bank to launch a third round of bond buying later this year. The Fed's next meeting is July 31-Aug. 1. (Writing by Mark Felsenthal. Editing by Eric Beech)

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