Published: Thu, 19 Feb 2009 19:53:57 +0100

Fed's Lockhart Says Economy "Extremely Weak," But Modest Recovery by Year-End

(CEP News) - Despite the "extremely weak" state of the U.S. economy at present, Federal Reserve Bank of Atlanta President Dennis Lockhart said he expects a modest recovery by the second half of the year.

Speaking in Birmingham, Alabama, Lockhart said the economy still faces a number of obstacles, including weak credit markets, a housing market weighed down by excess supply and low household and business confidence.

Despite that, Lockhart said many forecasts, including his own, see "catalysts" for the start of "modest" recovery in the second half of the year.

He said there are signs that lower mortgage interest rates are starting to help housing markets. He also called the strength in January retail sales, which showed a pickup in consumer spending, "encouraging."

However, Lockhart stressed the importance of a comprehensive and coherent policy response in order to ensure a quick recovery to growth.

"We have reached a pivotal juncture. After a rapid onset of problems in the economy and financial system - both global and national - we've reached a point where incremental responses must proceed to something more comprehensive, scaled, and coherent," Lockhart said.

"I believe the composite policy approach is correct in focus and intent, and now the devil is largely in the details and implementation," he said.

Lockhart also said he will be watching the financial conditions of emerging markets for stresses, as well as growing protectionist sentiment in the U.S.

By Stephen Huebl, shuebl@economicnews.ca, edited by Sarah Sussman, ssussman@economicnews.ca