Fed's Rosengren: Economy To Continue To Recover Slowly

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Eric Rosengren, president of the Federal Reserve Bank of Boston, said Friday that while overall conditions in the nation's financial markets have improved, real economic recovery has proceeded "more slowly."

Speaking at The Connecticut Business & Industry Association and the MetroHartford Alliance Economic Summit & Outlook 2010 in Connecticut, Rosengren said that it appears that economic growth in 2010 will be positive, but slow enough that the unemployment rate will remain high.

"I would be happy if in hindsight it is clear I have been too pessimistic," he said in prepared remarks. "But as I see it, the economy faces three significant 'headwinds.'"

Elaborating on those headwinds, the Boston Fed chief said that banking problems still remain, even though the banking crisis has passed.

"Most economies that experience significant banking problems have been slow to recover, and that is likely to be true this time in the U.S. Loans at banks have declined over the past several quarters, as many businesses are constrained by their balance sheets and reluctant to take on new debt," Rosengren said.

He added that banks are likely to continue to restrain lending to avoid taking on too much risk while sorting out problems with existing loans.

Rosengren went on to say that businesses and consumers will remain cautious, which will hamper growth.

"Consumption will continue to be subdued, as consumers are fully aware that housing prices are well off their peak, unemployment rates are high, and home foreclosures are continuing," he said. Rosengren added that businesses will gradually expand investment until they are more confident that the economy will also continue to expand after supportive government programs wind down.

He also touched on the slack in the labor market, saying that the recession's adverse effects on the labor markets, including discouraged workers leaving the labor force and atrophying skills of unemployed workers, will keep the economic recovery subdued.

However, Rosengren did say that markets have returned to much more normal trading patterns and that the Fed will likely be able to remove much of emergency lending facilities without any adverse effects.

Eric Rosengren, president of the Federal Reserve Bank of Boston, said Friday that while overall conditions in the nation's financial markets have improved, real economic recovery has proceeded "more slowly." Speaking at The Connecticut Business & Industry Association and the MetroHartford Alliance Economic Summit & Outlook 2010 in Connecticut, Rosengren said that it appears that economic growth in 2010 will be positive, but slow enough that the unemployment rate will remain high. (Market News Provided by RTTNews)