The U.S. economy is recovering faster than many policymakers had expected, but a "broad-based recovery is taking more time to achieve" and more progress will be needed in the job market before the Federal Reserve's conditions for reducing its extensive support will be met, the head of the Federal Reserve Bank of Cleveland said on Wednesday.
The unemployment rate could fall to 4.5% or less this year and gross domestic product growth is likely to be in the "6 to 7% range," Cleveland Fed President Loretta Mester said in prepared remarks to the Boston Economic Club.
"My positive baseline outlook depends on appropriate monetary policy, which, in my view, will need to be very accommodative for some time to support the broadening of the recovery," she said, echoing comments from some other Fed officials on Wednesday.
Mester said the inflation pressures she and others expect to surface this year, arising from comparisons with depressed levels a year ago and supply bottlenecks that are emerging as the economy reopens, should not be enough to meet the Fed's stringent forward guidance for reducing its current accommodative policy stance.
"I wouldn't consider the increase in inflation I expect this year to be the type of sustainable increase needed to meet the forward guidance on our policy rate," Mester said. "So I expect to be deliberately patient unless there is clear evidence that inflation pressures will push inflation to exceed our desired path."
While the labor market is improving, further progress is also needed before any change to the Fed's asset purchase program should be on the table, she added.
"I need to see more improvement before I would consider the conditions of our forward guidance on asset purchases as being met," said Mester.
At its most recent policy meeting last week, the Fed took a rosier view of the U.S. economic recovery and the nation's battle to contain the coronavirus outbreak, but said it was too early to consider rolling back its emergency support, with so many workers still left jobless by the pandemic.