The labor market in the United States is improving and the economy is close to the point when the unemployment rate will start to fall, a top U.S. Federal Reserve official said on Thursday.
James Bullard, president of the St. Louis Federal Reserve Bank, also said that U.S. housing prices were stabilizing and that housing starts were likely to steady and cease to be a drag on growth.
Bullard, who votes on the U.S. central bank's policy-setting Federal Open Market Committee (FOMC) this year, was speaking to an audience of university students in Shanghai.
The U.S. jobless rate stood at 10 percent in November, just off a 26-1/2-year high, and a report on Friday is expected to show that employers continued to shed jobs last month.
Bullard played down price pressures facing the United States in the near term, saying that the Fed's moves to pump liquidity into the economy were not an inflationary concern.
He did, however, say the Fed's asset purchase program could fuel a risk of inflation over the medium term.
"If inflation expectations started to get out of line, that would trump everything," he said.
Any risk of inflation existed on a two- to five-year horizon, not over the next year, he said.
Bullard also said that the Fed ought to stay active in purchasing assets from the market at a low level beyond March, though he displayed cautious optimism, saying that a double-dip recession in the United States was unlikely.
Some U.S. Federal Reserve officials worried last month that waning government support could snuff out a housing recovery and a few thought they may need to step up asset purchases to buoy the sector.
In the end, officials debating monetary policy at a meeting on Dec. 15-16 decided to stick with their schedule to wind down by the end of March a mortgage-backed securities purchasing programme that has pushed down rates on home loans, according to minutes of the meeting released on Wednesday.
Bullard said that the Fed would gradually wind down its MBS buying as it did with its purchases of Treasurys, and so the withdrawal should have little negative impact on the housing market.
"If everything goes according to plan, I think the same will happen at the end, that it will be seamless," he said.
Minutes of the meeting released on Wednesday suggested officials could step back into the market if the housing sector's recovery gets derailed.
Labor market weakness remained an important concern for Fed officials, with policy makers saying they expect unemployment to remain high for "quite some time," according to the minutes.