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Mar 07, 2013, 03.33 PM IST | Source: Reuters

US economy, world's engine, remains in 'neutral'

Despite the efforts of the US Federal Reserve to use easy monetary policy to boost jobs, the country's economy is stuck in "neutral" more than three years after the end of the recession, a top Fed official said on Wednesday.

US economy, world's engine, remains in 'neutral'

Despite the efforts of the US Federal Reserve to use easy monetary policy to boost jobs, the country's economy is stuck in "neutral" more than three years after the end of the recession, a top Fed official said on Wednesday.

"It is not possible to create jobs through monetary policy alone," Dallas Fed President Richard Fisher said at a World Affairs Council of San Antonio event. "The US remains the economic engine of the world. It's not China, it's not Europe, it's the US, and the US remains in neutral."

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Fisher, repeating a well-worn analysis of the limits of the Fed's super-easy monetary policies, said the US central bank did not have the power to pull the economy from its standstill as long as US lawmakers did not do their part.

"You know how horrid things are in Washington," Fisher said. "We have provided fuel for an economic recovery because Congress and the executive have not provided the incentives for growth."

The US central bank has kept interest rates at rock bottom for more than four years and is currently buying Treasury and mortgage bonds in an effort to keep longer-term borrowing costs low enough to spur spending and hiring.

Yet unemployment is relatively high, at 7.9 percent, and inflation remains stubbornly below the Fed's 2 percent target, curtailing the boost that near-zero short-term interest rates can give the economy.

Fisher, who does not vote on the Fed's policy-setting committee this year, has been a vocal opponent of the Fed's bond-buying program, saying it can do little as long as lawmakers do not address the nation's debt problem and provide businesses with needed fiscal certainty.

US political leaders have so far failed to bridge a dispute over the budget, triggering broad spending cuts that both political parties deplore and setting the stage for fiscal tightening that could drag economic growth down sharply.

Fisher has questioned the bond-buying program's effectiveness at keeping interest rates low, and on Wednesday gave partial credit for historically low US interest rates to China's massive purchases of US debt

"They help us keep interest rates down and it is an expression of faith in the US economy," he said, referring to the Chinese.

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