Federal Reserve Bank of San Francisco President John Williams said the U.S. economy will probably take years to return to maximum employment, making it “essential” for the central bank to sustain record accommodation.
“The unemployment rate will remain above the natural rate for several more years,” Williams said today in remarks prepared for a speech in Santa Barbara, California. “It’s essential that we keep strong monetary stimulus in place for quite some time.”
Fed officials last week upgraded their forecasts for growth, unemployment and inflation even as they said the economy will require low interest rates through at least late 2014. Data released since the April 24-25 meeting of policy makers have pointed to a mixed outlook, with a report today showing that fewer Americans filed for unemployment benefits last week.
“We are still very far from our maximum employment mandate,” Williams said at an event hosted by the University of California, Santa Barbara.
Jobless claims fell by 27,000 to 365,000 in the week ended April 28, a one-month low, from a revised 392,000 the prior period, according to Labor Department figures released today. Still, a separate report today from the Institute for Supply Management showed service industries expanded in April at a slower pace than economists projected.
Stocks fell for a second day after the services report fueled concern the expansion is slowing. The Standard & Poor’s 500 Index (SPX) dropped 0.4 percent to 1,396.11 at 12:21 p.m. in New York.
The San Francisco Fed chief reiterated today that the aftermath of the housing crash, tight credit and a contraction in government spending has inhibited growth. The slow recovery means unemployment will only “gradually” decline, reaching about 7 percent at the end of 2014, he said.
Over the long-term, the so-called natural rate of unemployment will “settle” at 5.5 percent, Williams said. The unemployment rate in March was 8.2 percent.
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