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Fed: Worst of US recession is over

(Agencies)
Updated: 2009-04-19 19:02

NASHVILLE, Tenn -- Top US officials on Saturday offered reassurances that the worst of the economic downturn is likely over, helped by unprecedented efforts to keep credit flowing, though the recovery will be slow.

Two Federal Reserve policy-makers, Vice Chairman Donald Kohn and New York Fed chief William Dudley, both pointed to signs that measures taken by the US central bank are indeed working to help revive the economy.

Morning commuters drive past the Federal Reserve Bank building in Washington March 18, 2009. [Agencies]

And Paul Volcker, a senior economic adviser to the Obama administration and a former Fed chairman himself, said the rate of the economy's decline is set to slow.

Volcker, who like the other officials spoke at a conference of policy-makers and academics at Vanderbilt University, said, however, that the economy faces a "long slog" toward recovery.

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Fed officials often stress that there is a lag before the economy responds to measures taken to support growth, such as interest rate cuts, and that those lag times can vary.

Since the financial crisis erupted in 2007 the Fed has slashed its benchmark lending rate from a peak of 5.25 percent, reaching the current range of zero to 0.25 percent in December 2008.

The Fed has also created an alphabet-soup of programs to support credit markets and revive lending in different segments, especially home mortgages.

While the central bank's emergency measures have caused the Fed's balance sheet to balloon to over $2 trillion, Kohn and Dudley dismissed worries that the measures could lead to inflation down the road, saying they have plenty tools to drain excess cash from the system when necessary.

THE GREAT RECESSION

Volcker, known for aggressive interest rate hikes to combat spiraling inflation when he was the Fed chairman in the 1980s, said the unprecedented tumble in economic activity in late 2008 may not have left the United States in a Great Depression but has left it "in a great recession for sure."

"None of us has seen a decline in economic activity at the rate of speed seen late last year," said Volcker, who has been enlisted by Obama as part of a heavyweight economic team.

Most economists see the fourth quarter of 2008, when gross domestic product shrank by 6.3 percent, and the just-ended first quarter of 2009 as the low point.

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