Fed's Lacker Says Economy to Rebound in 2009

Richmond Federal Reserve President Jeffrey Lacker said it is too soon to tell when spending in the United States will revive, but monetary policy is "quite stimulative" and the economy may regain positive momentum in 2009, he said.

Speaking to the Maryland Group in Bethesda, Lacker said these aren't the best of economic times, but that he remains optimistic that the U.S. economy will rebound. "[T]here is no sign that the fundamental creative process that drives innovation and improves well-being over time has been mortally wounded," he said.

Lacker said the slowdown in growth is a challenge, but he said the more significant challenge "will be to re-establish the boundaries around central bank lending and public sector support." Reconstructing the relationship between the public sector and financial markets will be a challenge instrumental to the effectiveness of the financial system as well as overall economic growth, he added.

The Richmond Fed President also said he "would be surprised if we don't see a bottom in housing construction around the middle of 2009," yet he conceded that previous forecasts have been incorrect.

"This is the third straight year, however, that I've been expecting a bottom in the housing market in the middle of next year, so my outlook is tempered by more than the usual amount of humility," he said.

By Patrick McGee and edited by Stephen Huebl
©CEP News Ltd. 2008