The Federal Reserve has the appropriate level of monetary accommodation in place to let the economy reach "escape velocity" next year, a top Fed official said Monday.
"We continue to face powerful headwinds in the fiscal situation and the global economy," Chicago Federal Reserve Bank President Charles Evans told the CFA Society Chicago. But the economy "seems to be performing pretty well right now," he added, with the labor market, consumer spending and housing all improving.
By 2014, GDP growth should be between 3 percent and 4 percent, allowing the recovery to be self-sustaining, he said.
The Fed is buying $85 billion in Treasurys and mortgage-backed securities each month in a bid to spur growth and hiring by lowering borrowing costs. It has said it will keep buying assets until it sees substantial strengthening in the labor market. While it has made good progress, officials "need a little more time" before they can be confident that the "substantial" milestone has been reached, Evans said.
The Fed has also pledged to keep interest rates near zero until the unemployment rate falls to 6.5 percent, as long as inflation does not rise above 2.5 percent. Unemployment was 7.5 percent in April.