US Federal Reserve Bank of Dallas President Richard Fisher said the US unemployment rate may exceed 9 percent amid slowing consumer spending and waning production.
The economy “is on pace to contract further throughout this year,” Fisher said on Monday in a speech in Houston.
“Demand has evaporated as businesses and consumers alike pull in their horns and de-lever from excess indebtedness that fueled the prior boom,” he said.
Unemployment in the US climbed last month to the highest level since 1992 and payrolls dropped more than forecast as the recession showed no sign of abating. The jobless rate rose to 7.6 percent from 7.2 percent in December, the US Labor Department said on Friday in Washington.
The jobless rate “appears to me to be headed in the direction of, and possibly past, 9 percent,” Fisher said.
The economy contracted by 3.8 percent in the fourth quarter, the most since 1982. Consumer spending in the US fell in December for a record sixth consecutive month, capping the worst year since 1961.
The economy may contract by about 2.5 percent this year, and a recovery probably won’t begin until next year, Fisher said after the speech.
“There is no confidence” in financial markets, he said.
The US central bank must be free of political meddling that may impede its efforts to promote stable prices and growth in employment, Fisher said.
“It is more important than ever that we maintain the independence of our central bank,” Fisher said. “As the executive branch and the legislature seek to navigate our economy to safe harbor, we must minimize the impulse to let political exigencies hamper” the Fed.
US lawmakers will probably send President Barack Obama a fiscal stimulus plan by the end of the week aimed at stemming the longest recession since 1982, Senate Majority Leader Harry Reid said on Monday.
The Senate in a procedural vote advanced legislation yesterday for an US$838 billion stimulus. The House approved an US$819 billion plan last month.
Fed officials left the main interest rate last month at as low as zero while signaling concern the world economy was weakening “significantly.”
The number of Americans filing first-time jobless claims reached a 26-year high, the Labor Department reported on Thursday. Initial applications for unemployment benefits climbed more than forecast to 626,000 the prior week, the department said.