Unemployment in the US is likely to rise above 10 percent by the end of the year because of the deepening economic downturn, a federal reserve banker said yesterday.
Richard Fisher, president of the Federal Reserve Bank of Dallas, brushed aside concerns that the US authorities’ actions to pump up the ailing economy could bring about a surge in inflation or weaken the dollar.
“Our economy faces a tough road. We are the central bank of the largest economy in the world and we are duty bound to apply every tool we can to clean up the mess that our financial system has become and get back on the track of sustainable economic growth with price stability,” he said in a speech here.
“I expect the unemployment rate to continue rising to a level that could surpass 10 percent by year-end. Among other things, this has compounded the problem of the much-watched housing market, where many of the problems we have encountered in our financial markets germinated,” he said.
The Fed can no longer use traditional monetary policy to stimulate activity after having cut its base rate to a range of zero to 0.25 percent. So it has resorted to exceptional moves to stimulate activity, in effect printing money and buying up securities in markets that have been frozen.
Last month, the US central bank said that it would seek to pump more than US$1 trillion more into the system by buying up long-term US Treasury bonds and other securities.
The US Fed’s priority is to facilitate sustainable jobs growth without inflation, Fisher said, according to a prepared transcript of his speech to the Japanese Bankers Association.
“Presently, the risk is deflationary job destruction. We have undertaken measures to counter that risk. And we seek to do so in a way that will not ignite the embers of either a future destructive inflation or a debasement of our currency,” he said.