Fed Official: No Sign US Economy is Strengthening

Despite the consensus forecast of US economic recovery remains quite optimistic, there are some downside risks to that outlook, U.S. Federal Reserve board governor Laurence Meyer said Wednesday.

"There are no signs yet that the economy is strengthening relative to its first-quarter performance and growth is likely to remain sluggish into the third quarter," Meyer said in a speech in New York.

He said the consensus forecast of economists, which calls for a weak first half, but no recession, and some improvement in the second half of the year, on the way to trend growth next year, is "quite optimistic."

"While a recovery along the lines of the consensus forecast is reasonable, I see some downside risks to that outlook," Meyer said.

The U.S. economy grew at an annual rate of 1.3 percent in the first quarter of this year, following an anemic 1 percent rate in the fourth quarter last year.

In an effort to stave off recession, the Federal Reserve has cut interest rates five times, totaling 2.5 percentage points, driving the borrowing costs down to the lowest level in seven years.

The response to Fed's monetary easing should "begin to mount in the second half and continue to build in 2002," Meyer said.

"But the key to the strength and rapidity of the recovery will be the balance between the working off of excesses associated with new-economy forces that built up in 1999 and early 2000 and the renewal of investments as new-economy opportunities continue to accumulate," he said.

Meyer also said it is unlikely that economic growth next year will return to the "exceptional performance" from 1996 to mid-2000.






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