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US Fed says steep economic decline begins to moderate

05 June 2009 16:33 (UTC +04:00)

Bakuâ€“ APA-Economics. Longstanding imbalances in the U.S. economy are hampering the country’s recovery from recession, the president of the Federal Reserve Bank of Cleveland said Thursday.
That recovery is on the way, though it most likely will be slow and prolonged, Sandra Pianalto said.
In prepared remarks for a speech at the annual INVESTKentucky Conference, Pianalto said "the steep decline in our economy has begun to moderate."
She said she expects sales and production to begin to improve, although gradually, in the second half, and she encouraging signs in the credit markets and even the housing market, where existing home sales have stabilized and declines elsewhere have eased.
But these forces are impeded by longer-term unhealthy trends in the U.S. economy.
"Our economy has been characterized for years by strong imbalances that will hold back the pace of our recovery," the central banker said.
She pointed out that the nation’s spending has for too long been financed by overseas demand for U.S. assets, and the current elevated level of federal borrowing can’t continue indefinitely. Growth has been dominated by personal consumption, and its composition will change with the shift now under way in household saving.
Labor markets are also undergoing major structural changes, she said.
"It could take a long time before the unemployment rate returns to levels we think of as normal, and we might even need to revisit our definition of normal," she said.
The economic crisis has forced a re-examination of these imbalances, and Pianalto said tackling them will "increase our prospects for greater prosperity over the longer term."
"These four forces: expansionary monetary and fiscal policies, the stabilization of the housing market, the return of confidence to the financial sector, and above all the entrepreneurial spirit of American business - collectively build a strong foundation for growth," she said.
Pianalto isn’t a voting member on the Federal Open Market Committee. The current focus of its monetary-policy decisions, since dropping the target interest rate to zero in December, is adapting its special lending and asset-purchase programs to help stimulate the economy. Source: Wall Street Journal, Dow Jones Newswires.