Boston Fed head: Despite positive signs, high jobless rate will persist

Unemployment is expected to remain at elevated rates for the next two years, Boston Federal Reserve Bank president and chief executive Eric Rosengren said at a meeting of the Greater Boston Chamber of Commerce today. “I expect a slow recovery,” he said. “While I expect that we will see positive growth in the third and fourth quarter of this year, it will not be sufficient to make significant headway in improving labor market conditions right away.” There are some positive signs of economic recovery, however, Mr. Rosengren said. “The volume of short-term interbank lending is increasing,” he said. “And the stock prices of many of our major financial institutions reflect a renewed belief that they can weather their credit problems and be profitable.” Despite these “very positive signs,” Mr. Rosengren said, the “economic recovery remains fragile and quite capable of falling short of the more positive expectations.” “I personally expect our primary short-run concern to be disinflation rather than inflation,” he said. Mr. Rosengren expects a low inflation rate to persist over the next several years and said that commercial-real-estate write-offs likely will continue to weigh on heavily leveraged institutions. “I am concerned about capital losses among the commercial-real-estate sector that could cause losses for financial institutions,” Mr. Rosengren said. “Commercial real estate is not a large share of the [gross domestic product], but the write-offs are in leveraged institutions. I am concerned about capital losses among the commercial-real-estate sector that could cause losses for financial institutions,” Mr. Rosengren said. “Prices have come down. Hopefully, we'll start to see some stability, but in the commercial-real-estate market, we still have a way to go.”