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March 24, 2010

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Accommodative US monetary policy

UNITED States monetary policy is likely to remain accommodative for at least six months to support economic growth, a senior US Federal Reserve official said yesterday in Shanghai.

The policy-setting Federal Open Market Committee voted last week to keep its benchmark rate near zero for an "extended period" and said measures to support the housing market will end this month as planned.

"Extended period is a conditional statement but I would expect it means that will hold for the next three or four meetings, which will be about six months," said Charles L. Evans, president of Federal Reserve Bank of Chicago.

"Frankly, I think that conditions would continue towards substantial accommodation, certainly through the end of this year," Evans told a press briefing.

"I wouldn't be surprised if that moves into 2011."

Evans, 52, said in an environment where inflation in the US is contained, he continues to strongly support accommodative policies until the economic standard of momentum of unemployment comes down or rising inflationary pressures emerge.

He said inflationary pressures in the US are "extremely well contained," with core inflation at about 1.5 percent, within a target of 2 percent.

The targeted unemployment rate is 5 percent. The US unemployment rate held at 9.7 percent in February.

"Employment is often the last piece of the puzzle in the United States to fall in the place," he said. "So I'm hopeful that business will be surprised by the strength of demand over the next year and they will actually begin to add workers. But it is quite a cautionary prospect for the US. That leads me to think that the monetary policy is likely to continue to be accommodative for an extended period of time."

He expects economic growth in the US in 2010 to be 3 to 3.5 percent.


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