The United States economy will probably start picking up in the second quarter towards an annual rate of about 3 per cent, but it may not be clear for some time if it is on a sustained path, a top official at the 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 per cent,” Mr Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, told a business gathering in Dubai.
Mr Lockhart, who said he was speaking in his personal capacity, does not have a vote this year on the central bank’s policy-setting board, but he participates in its discussions. He is considered to be near the centre of the Fed’s policy spectrum and his comments often reflect the views of the core decision-makers.
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 job market led the Fed to start winding down its bond-buying programme, which is aimed at pushing down borrowing costs.
However, dissatisfied with the US recovery, the Fed is still adding US$45 billion (S$56.2 billion) in bonds each month, though the purchases should end later this year. “I expect this programme to be completely phased out by October or December this year,” Mr 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 end. “Based on my outlook, I think 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 normalisation of interest rates to be gradual,” Mr Lockhart said.
Inflation has been running just above 1 per cent in the world’s No 1 economy, while unemployment, albeit falling, is still elevated at 6.3 per cent.
However, Mr Lockhart said 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 towards full employment,” he said.