UPDATE 1-Weak U.S. rebound calls for low rates-Fed’s Kohn

(Adds Kohn comment)

By Jim Christie

SAN FRANCISCO, April 8 (BestGrowthStock) – A gradual U.S. economic
recovery marked by high unemployment and tame inflation will
require interest rates to remain very low for an “extended
period,” Federal Reserve Vice Chairman Donald Kohn said on
Thursday.

The Fed’s promise to keep rates low, however, is contingent
on economic conditions, such as an absence of strong private
demand and a reluctance by businesses to hire, Kohn indicated.

“We cannot provide a precise timetable for when short-term
interest rates will begin to return to normal because that
depends on the evolution of actual and projected activity and
inflation,” Kohn said in prepared remarks to a luncheon
sponsored by the Federal Reserve Bank of San Francisco.

For now, Kohn said conditions do appear to warrant the
central bank’s highly accommodative stance, undertaken as a
response to the worst financial crisis since the Great
Depression.

In particular, Kohn focused on the labor market, which he
characterized as “extremely weak.”

“The most likely scenario is a gradual pickup in economic
activity,” he said.

Against that backdrop, Kohn believes inflation will not
become a problem any time soon. He said the high jobless rate,
which came in at 9.7 percent in March, suggested the economy
was not operating anywhere near its maximum productive
capacity.

Nonetheless, Kohn acknowledged that the sharp increase in
bank reserves generated by the Fed’s unconventional policy
easing measures created uncertainty about how an eventual
tightening might proceed.

“Given the lags in monetary policy, that means we will not
be able to wait until the unemployment rate is down close to
its long-term level,” he said.

“As the expansion matures, we will need to withdraw
monetary stimulus to prevent the development of inflationary
pressures,” Kohn added.

Stock Investing

(Editing by Andrew Hay)

UPDATE 1-Weak U.S. rebound calls for low rates-Fed’s Kohn