Fed officials cautious on U.S. economic recovery
ATLANTA (Reuters) - Three top Federal Reserve officials on Tuesday struck a cautious note on the U.S. economy, citing high unemployment, heavy reliance on government support and commercial real estate woes as hurdles to recovery.
Speaking less than a week after the Fed left interest rates unchanged at near zero, a trio of top officials -- San Francisco Federal Reserve Bank President Janet Yellen, Atlanta Fed chief Dennis Lockhart and Boston Fed President Eric Rosengren -- said the economy was still vulnerable.
"The strength and durability of the expansion is in question," Yellen said in Phoenix, Arizona. "High unemployment, weak job growth and paltry wage increases are a recipe for sluggish consumer spending growth and a tepid recovery."
She said it was not yet clear whether the private sector could carry the load once supportive policies fade.
A fourth official, Richmond Fed President Jeffrey Lacker, was more upbeat, telling CNBC the broad contours of recovery would be the same even without government stimulus.
However, Lacker -- an inflation "hawk" -- made clear he was not itching to push up borrowing costs yet.
Asked if the Fed would raise rates next year, he responded: "It is too soon to say ... it could take longer than that. What I'm going to look for is growth that is strong enough and well-enough established that we need higher real interest rates."
The Fed chopped overnight interest rates to near zero in December and it has pumped more than $1 trillion into the economy to spur a recovery from the deepest downturn since the Great Depression. The White House and Congress also lent support with a $788 stimulus package of tax cuts and spending.
Last week, the Fed reaffirmed its commitment to keep borrowing costs ultra-low for "an extended period," and financial markets are listening to Fed officials closely to try to gauge when they may finally move to withdraw their economic support.
The latest remarks eased investor's worries about higher interest rates, helping support prices for U.S. government debt.
Yellen, Lockhart and Lacker are among the voters this year on the Fed's policy panel, while Rosengren will move into a voting slot in 2010. While Yellen and Rosengren are seen as Fed "doves," Lockhart is considered more of a hawk.
"It's a question of timing," Rosengren told a seminar in London when asked how the Fed planned to exit from its extraordinarily supportive policies. "We're not there yet."
A fifth U.S. central bank official who spoke on Tuesday, Fed Governor Daniel Tarullo focused his remarks on regulatory reform.
SELF-SUSTAINING RECOVERY QUESTIONED
Lockhart said U.S. economic growth would be "relatively subdued" in the medium term. Continued...
