July 9, 2012 / 1:43 AM / 6 years ago

Global uncertainty to weigh on U.S. growth: Fed official

BANGKOK (Reuters) - Slow U.S. economic growth will probably continue for quite some time as firms postpone hiring and investment in the face of an uncertain global economy, a top Federal Reserve official said on Monday.

Boston Fed President Eric Rosengren, a dovish policymaker at the U.S. central bank, warned about the weak recovery in the U.S. labor market and the significant number of Americans who remain unemployed more than three years after the recession.

“Apparently, firms have become more tentative in the face of growing global economic uncertainties,” Rosengren was to tell the Sasin Bangkok Forum, according to prepared remarks.

But a quick resolution “may remain elusive” for Europe’s sovereign debt concerns, the large deficit problems in many countries, and for global banking problems, he said. “This suggests that slow growth is likely to continue for quite some time.”

Last week, a handful of central banks including that of China and the euro zone took steps to ease monetary policy, reflecting growing alarm over the health of the world economy.

On Friday, a report showed U.S. jobs growth was tepid for a fourth straight month in June, which could put pressure on the Fed to ease policy even more. Last month, the central bank prolonged a bond maturity-extension program called Operation Twist through the end of the year.

Rosengren does not have a vote on the U.S. central bank’s policy-setting committee this year but strongly endorses a strong Fed response to ratchet down the still-high 8.2 percent unemployment rate. He had pushed for the expansion of Twist.

“Significant excess capacity” remains in the U.S. labor market, and job growth has “slowed fairly noticeably” in the last few months, the policymaker said on Monday.

While the Fed did not launch a third controversial round of large-scale bond buying - known as quantitative easing, or QE3 - as some expected last month, its policy-setting Federal Open Market Committee (FOMC) did lower expectations for U.S. growth and inflation, and raised that of unemployment.

Lower commodity prices, a stronger dollar, and subdued labor costs led Fed policymakers to adjust the 2012 inflation adjustment, Rosengren said.

The policymaker added that he is personally “more pessimistic” on the economy than the FOMC. He said he expects inflation at roughly 1.2 percent in 2012; lower GDP growth than the FOMC’s 1.9-2.4 percent range; and higher unemployment than the FOMC’s 8.0-8.2 percent range.

“My pessimism is rooted in an expectation of weakness in investment, net exports, and government spending,” including “concerns about economic and financial conditions in Europe,” Rosengren said.

More broadly, economic activity is slowing in many parts of the world, including in the United States and China, while “it looks like Europe is in a recession,” Rosengren added.

“This likely reflects a widespread concern that global trade may be disrupted if there is an international financial shock, and that businesses are postponing hiring and investment decisions until the global outlook is more certain.”

Reporting by Orathai Sriring and Alan Raybould in Bangkok; Writing by Jonathan Spicer in New York; Editing by Chizu Nomiyama

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