Rosengren: US Recovery Likely Subdued

The U.S. economy may start to grow again by the end of this year, the president of the Federal Reserve Bank of Boston said on Thursday, but he stressed that any recovery will likely be slow.

Eric Rosengren, in a speech to the Worcester Economic Club, struck a similar tone to recent remarks from other Federal Reserve policy-makers -- namely that economic recovery will not happen overnight.

Rosengren said his forecast for a slow recovery is due to the severity of the financial crisis, the huge loss in consumer's household wealth, the sharp drop in housing prices, and the global nature of the crisis.

"This recession has involved larger impacts on our economic and financial infrastructure than others, a fact that makes my outlook on the speed of this recovery rather subdued," he said.

On Wednesday, a release of the minutes from the Federal Reserve's April meeting showed that central bank policy-makers saw modest improvement in the economy, but said that risks to a recovery remained.

Rosengren said he believed the aggressive monetary and fiscal responses to the crisis, which included slashing the benchmark federal funds rate to near zero and putting in place a vast array of emergency lending programs, had helped "provide the foundation for an economic recovery."

While the economy and financial markets are still vulnerable, Rosengren said he expects that "in the absence of significant further shocks that we will begin to see positive economic growth towards the end of this year."

That growth, however, is unlikely to be enough to lead to "much improvement" in labor markets until 2010, he said.

He added that it was too early to say whether the worst of the recession is over.

"While we are beginning to see more mixed economic data, which are likely a harbinger of a trough in this recession, the economy and financial markets remain quite sensitive to additional shocks," Rosengren said.

Financial institutions and markets are still recovering from recent turmoil, he said, and accessing short-term credit is still difficult for many firms.

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"Continued healing of financial institutions requires recapitalization and full recognition and disposal of problem assets," Rosengren said. The Treasury aims to address the issue of so-called "toxic assets" on bank balance sheets through its public private investment program, which has yet to launch.

Rosengren is not a voter in 2009 on the Federal Open Market Committee, the Fed's policy-setting panel.

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