The US economy will probably start picking up in the second quarter, toward an annual rate of about 3 percent, but it may not be clear for some time whether the world’s largest economy is on a sustained path, a top official at the US Federal Reserve said yesterday.
“It may not be clear for several months, or even quarters, whether the US economy is undeniably on a stronger and sustained growth path around a run rate of 3 percent,” Dennis Lockhart, president of the US Federal Reserve Bank of Atlanta, told a business gathering in Dubai in a prepared speech.
Lockhart, who said he was speaking in his personal capacity, does not have a vote this year on the Fed’s policy-setting board, but he participates in its discussions.
He is considered to be near the center of the central bank’s policy spectrum and his comments often reflect the views of the core decisionmakers.
The Fed has kept overnight interest rates near zero since late 2008 to help the US economy recover from a deep recession.
Signs of recovery in the US jobs market led the Fed to start winding down its bond-buying program, which is aimed at pushing down borrowing costs.
However, dissatisfied with the US recovery, the Fed is still adding US$45 billion in bonds each month, though the purchases should end later this year.
“I expect this program to be completely phased out by October or December this year,” Lockhart said.
At its last policy meeting on April 30, the Fed stuck to its assessment that the economy would need near-zero interest rates for a “considerable time” after the asset purchases ends.
“Based on my outlook, I think that conditions in the US economy will justify beginning the process of raising rates in the latter half of 2015. Once rates begin to rise, I expect the process to normalization of interest rates to be gradual,” Lockhart said.
Inflation has been running just above 1 percent in the world’s biggest economy while unemployment, albeit falling, is still elevated at 6.3 percent.
Lockhart said that he expected inflation to firm to a healthier rate over the medium term on a track to the Federal Open Market Committee’s 2 percent target.
He also said that despite the decline in the unemployment rate last month, the US apparently added jobs, but lost workers.
“So I am hesitant to take on board this decline in the unemployment rate as indisputable evidence of progress toward full employment,” he said.