In a speech this morning in Syracuse, New York Federal Reserve President William Dudley told an audience of local business leaders that while the US economy is doing better, “real economic activity has yet to be strong enough on a sustained basis to make a big dent in the overall amount of slack in the U.S. economy.”
The “slack” he refers to is unemployment, still running at 8.2%, a level Dudley called “unacceptably high.” And as for the burst of GDP growth (3%) in the fourth quarter of 2011:
To put the recent pace of growth into perspective, we believe that the economy’s long-run sustainable growth rate—what economists call the potential growth rate—is around a 2.25 percent annual rate. We need sustained growth above that rate to absorb the still substantial amount of unused productive capacity. Thus, our recent growth rates are barely keeping up with our potential.
Those are not encouraging words on the employment outlook.
Dudley also noted that despite high gasoline costs, he expects core inflation to moderate during 2012:
While the underlying core inflation rate, that strips out volatile food and energy prices, has been somewhat higher than expected a few months back, it appears that the annual rate of core inflation has peaked and we expect it to begin to decline later this year. Finally, inflation expectations, which play an important role in the inflation process, remain well anchored. By this I mean that people expect that the rate of inflation will continue to be relatively low for some time to come.
The full text of Dudley’s speech is available here.