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Federal Reserve officials on Tuesday struck a cautious note on the U.S. economy, citing high unemployment, heavy reliance on government support and commercial real estate woes as hurdles to recovery.

Speaking less than a week after the Fed left interest rates unchanged at near zero, a trio of top officials — San Francisco Federal Reserve Bank President Janet Yellen, Atlanta Fed chief Dennis Lockhart and Boston Fed President Eric Rosengren — said the economy was still vulnerable.

“The strength and durability of the expansion is in question,” Yellen said in Phoenix, Arizona. “High unemployment, weak job growth and paltry wage increases are a recipe for sluggish consumer spending growth and a tepid recovery.”

The Fed chopped overnight interest rates to near zero in December and it has pumped more than $1 trillion into the economy to spur a recovery from the deepest downturn since the Great Depression.

Last week, it reaffirmed its commitment to keep borrowing costs ultra-low for “an extended period,” and financial markets will be listening to Fed officials closely to try to gauge when they may finally move to withdraw their economic support.

The latest remarks eased investor’s worries about higher interest rates, helping support prices for U.S. government debt.

Yellen and Lockhart are among the voters this year on the Fed’s policy panel, while Rosengren will move into a voting slot in 2010. While Yellen and Rosengren are seen as Fed “doves” on inflation, Lockhart is considered more of a hawk.

“It’s a question of timing,” Rosengren told a seminar in London when asked how the Fed planned to exit from its extraordinarily supportive policies no credit check payday loans. “We’re not there yet.”

SELF-SUSTAINING RECOVERY QUESTIONED

Yellen said it remains to be seen whether the private sector can carry the load once supportive fiscal and monetary policies fade. Meanwhile, Lockhart said that while a recovery was under way, growth would be “relatively subdued” in the medium term.

“The situation is much improved, but there are sobering aspects of the economic picture,” he told a conference in Atlanta, adding data on bank failures, foreclosures, unemployment and personal income “continue to disappoint.”

The U.S. economy grew at a 3.5 percent annual rate in the third quarter, snapping four consecutive down quarters and likely ending the recession that began in December 2007.

But labor market conditions remain dismal. The unemployment rate surged to a 26-1/2-year high of 10.2 percent in October, and a Reuters poll on Tuesday showed economists expect it to hit 10.5 percent in mid-2010 before subsiding.

High unemployment is one factor expected to keep the Fed on the sidelines. The central bank said last week that economic slack, subdued inflation trends and stable inflation expectations argued for a prolonged period of low rates.

“At this juncture, it’s hard to be encouraged about a fast rebound in job growth,” Lockhart added. 

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