Headwinds stemming from the collapse of the housing bubble will hold back the nation’s economy this year, keeping growth closer to 3 percent than 4 percent, a top Federal Reserve official said on Thursday.
While 2011 will be better than 2010, the pace of recovery will not be fast enough to make a serious dent in the stubbornly high jobless rate, Minneapolis Fed President Narayana Kocherlakota said in a speech prepared for delivery at the Twin Cities campus of the University of Minnesota.
Kocherlakota sees the jobless rate staying above 9 percent for the rest of this year. "Even more troubling," it will still be above 8 percent by the end of next year, he said in the speech, which largely repeated one he gave Jan. 11 in Madison, Wisc.
The U.S. jobless rate was 9.4 percent in December, and economists estimate it rose to 9.5 percent in January. The government will report the January rate on Friday morning as part of its closely watched monthly payrolls report.
Kocherlakota said inflation is too low, but said he is "optimistic" it will rise this year, though he sees it staying below the Fed’s informal 2 percent target.
Kocherlakota’s subdued view on the recovery’s path is in line with that of Fed Chairman Ben Bernanke. Earlier on Thursday Bernanke painted a rosier outlook of the economy than he had in earlier appearances, but still made clear he thinks it is in need of help from the U.S. central bank.
Kocherlakota, who is a voting member of the Fed’s policy setting panel this year, has said he supports the Fed’s latest $600 billion round of bond purchases designed to spur the economy, due to run through June.
Inflation hawks on the panel, among whom Kocherlakota is often classed, have warned that the bond-buying program could sow the seeds for future inflation.
But Kocherlakota on Thursday repeated his view that there is little evidence of the current program doing so. His slight revisions to his earlier speech if anything suggest he is even more sanguine on the threat of inflation than before.
While in January Kocherlakota said the Minneapolis Fed’s model suggests inflation this year will register between 1.5 percent and 2 percent this year, on Thursday he said the model suggested just 1.5 percent inflation.
