U.S. unemployment will linger: Fed

The Federal Reserve predicts unemployment in the United States will stay high over the next two years because recession-scarred Americans are likely to stay cautious — making for only a moderate-paced economic recovery.

The central bank's policymakers say it will take "some time" for the U.S. economy and the jobs market to get back to normal.

And, a minority of them think it could take more than five or six years for that to happen.

Previously, Fed policymakers suggested economic conditions would return to full health within five or six years.

In updated economic projections, the Fed says the U.S. unemployment rate this year could hover between 9.5 per cent and 9.7 per cent.

Next year, U.S. unemployment is expected to drop to between 8.2 per cent and 8.5 per cent. By 2012, the jobless rate will range between 6.6 per cent and 7.5 per cent.

At the Jan. 26-27 meeting, the Fed left rates at a record low near zero to help nurture the recovery and drive down unemployment. And it pledged to hold rates at "exceptionally low" levels for an "extended period."

One Fed official, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, objected to maintaining that pledge. He feared it would increase inflationary pressures, the documents show.

Instead, Hoenig wanted to change the language to say rates would stay low for "some time." Hoenig said he thought such a change would give the Fed more flexibility to start raising rates, the documents said. Hoenig also thought a move toward "modestly higher" interest rates should happen soon.