America’s revival will take years: Fed Reserve

WASHINGTON - America’s central bank has slashed its outlook for the US economy projecting that jobless rate could exceed 8 percent for two more years and it could take several years for the economy to return to health.

According to minutes from the Federal Reserve’s Nov 3 meeting released Tuesday, more than half of the central bank’s policymakers thought it would take about five or six years for unemployment, growth and inflation to return to more normal levels.

Other Fed members warned the full recovery could take even longer than that.

The much weaker forecast is the major reason that policymakers decided earlier this month to announce a plan to try and jumpstart growth by pumping an additional $600 billion into the economy through the purchase of long-term bonds, according to CNNMoney..

That plan, known as quantitative easing, has been criticised by several economists, politicians and foreign central bank officials.

The Fed now expects the economy to grow between 2.4 percent to 2.5 percent this year, compared to an earlier forecast of growth between 3.0 percent and 3.5 percent.

The Commerce Department reported Tuesday that the economy grew at a 2.5 percent rate in the third quarter, up from 1.7 percent in the second quarter but well below the increase of 3.7 percent in the first three months of the year.

The Fed also trimmed its 2011 forecast to growth of between 3 percent and 3.6 percent. Its earlier estimate was for growth of 3.5 percent to 4.2 percent.

The central bank also said the unemployment rate is now expected to average out between 9.5 percent and 9.7 percent this year. The jobless rate was 9.6 percent in October.

The Fed now forecasts unemployment will only fall to between 8.9 and 9.1 percent in 2011 and drop to between 6.9 and 7.4 percent by 2013. The unemployment rate was 4.6 percent in 2007, the last year before the recession.

The central bank also maintained that inflation should not be a problem for the foreseeable future. Prices for consumer goods are expected to rise a little faster than in the Fed’s previous estimate, but still well less than 2 percent through at least 2012.

The Fed has stated that price increases are now judged to be too low to maintain its goal of price stability. But some policymakers at the Fed have expressed concern that the steps the central bank is taking to stimulate growth could lead to higher inflation down the road.

(Arun Kumar can be contacted at arun.kumar@ians.in)