The U.S. economy is recovering, but the speed of improvement should not be overstated and "it is too early to declare victory," a top Federal Reserve policy-maker said.
Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, cited weak U.S. housing markets, state fiscal pressures and the European sovereign debt crisis as risks to the recovery, underscoring the need for the Fed's $600 billion bond purchase program.
"Progress is real, but fitful, and support of accommodative Fed policy is still required, in my view," he said Monday.
He said unemployment, currently at 9.4 percent, was "nowhere near acceptable levels." A number of factors including moderate economic growth, slower business formation and productivity enhancements in the workplace were holding back job growth, he said.
At its January 27 meeting, the Fed said high unemployment still justified its $600 billion bond-buying plan even though the economy has shown some signs of improvement.
Policymakers unanimously backed continuation of the Fed's bond purchases, the first time there was no dissent since December 2009. Regional Fed presidents rotate voting on monetary policy. Lockhart will next vote in 2012.
Lockhart's view was in line with his previous comments.
He said there were "definitely hopeful signs of a sustained recovery in 2011", but added that "the appropriate outlook at this juncture is one of cautious optimism, avoiding overstatement of the likely speed of improvement."
Economists at the 18 U.S. primary dealers — the large financial institutions that do business directly with the Fed — gave a median forecast for annualized growth in 2011 of 3.23 percent, according to the Reuters poll last week. That was up from an outlook of 3.10 percent growth in a similar poll on January 7.
Lockhart said inflation is currently at "lower-than-desired" rates, but the fear of deflation has abated. He said while concern about inflation is rising due to higher commodity prices, higher input costs for businesses have not translated into broader price pressures.
The Fed's calm view of price pressures is in sharp contrast to the European Central Bank, whose president has warned that the surge in commodity prices poses an inflation threat. While headline inflation has picked up in the United States, core inflation has held near a five-decade low.
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