Oct 20, 2014

U.S. could see full employment, 2 per cent inflation by 2015: Expert

'Full employment' considered to be between 5.2 and 5.5 unemployment rate

SAN FRANCISCO (Reuters) — The U.S. economy could be fully recovered from the effects of the financial crisis and recession as early as next year, a top Federal Reserve official said, flagging the possibility the U.S. central bank will need to raise interest rates sometime soon.

"There are good reasons to believe that we'll achieve our full-employment and price-stability objectives fairly soon, perhaps as early as next year," Dallas Federal Reserve Bank President Richard Fisher wrote in an Economic Letter released Monday. "Do we keep the accelerator pedal to the floor right up to the point where we reach our destination? Or do we ease up as we near our goal?"

Fisher, who co-wrote the Letter with his policy advisor Eric Koenig, did not answer those rhetorical questions directly.

But they warned against being too patient on interest rates and allowing the economy to blow past the Fed's twin employment and inflation goals.

Inflation, now running at about 1.6 to 1.7 per cent, is expected to reach two per cent by this time next year, they wrote, citing economists' forecasts. Unemployment is now at 5.9 percent, and Fed officials generally see full employment as somewhere between 5.2 and 5.5 per cent.

Historically, they wrote, the Fed has never been able to ease the economy smoothly back to full employment after having overshot that goal.

"We're not 'there' yet, but we're getting close," they wrote. "When the economy goes into reverse, it has a pronounced tendency to lurch backward all the way into recession."

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