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Richmond Federal Reserve President Jeffrey Lacker said Friday that the current recession has ended and that a turnaround in stock prices and the stabilization of house prices should lead to a rise in consumer spending.
Speaking Maryland Bankers Association "First Friday" Economic Outlook Forum in Baltimore, Lacker also commented on economic growth, saying that GDP likely grew 3.75 percent in the second half of 2009.
"Part of that growth will reflect the inventory swing - earlier in the year inventory liquidation kept production (that is, GDP) below final sales, and the shift toward inventory accumulation provides a temporary boost to GDP growth," he said in prepared remarks.
He added, "That addition to production will necessitate the hiring of new workers, which will add to households' incomes. Consumers, having deferred many purchases during the recession, will respond to growing incomes with higher spending."
The Richmond Fed chief said that economic activity has generally improved since the summer, especially in the housing market, where single-family housing starts have increased by 35 percent. He added, however, that the housing market still has a long way to go.
"Even with these welcome gains, however, new housing construction remains well below the pace required to accommodate population and income growth on a sustained basis," he said.
Lacker also commented on economic challenges in the labor market, though he said that there are a few signs of improving labor demand, including last November's increase in the average workweek.
"Even the more optimistic forecasters, though, do not expect a rapid improvement in national labor market conditions, and we will need to carefully monitor employment and earnings for an extended period," he warned, noting that his remarks were written before employment data was released Friday morning.
Employment data released Friday showed a loss of 85,000 jobs in December, with November's figure being revised to show an increase of 4,000 jobs.
Lacker went on to discuss inflation and the Fed's monetary policy, saying that inflation expectations remain stable and that deflation risk is also minimal, though he stressed keeping careful watch on the recovery.
"During the recovery period ahead we may face an increasing risk of inflation edging upward, which has sometimes occurred during past recoveries," he said. "While that risk appears to be minimal at this point, we will have to be careful as the recovery unfolds to keep inflation and inflation expectations from drifting around."
Lacker added that the Fed had the proper tools in place to withdraw the Fed's accommodative monetary policy when "economic growth is strong enough and well-enough established."
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