RTTNews - Federal Reserve Bank of Richmond president Jeffrey Lacker said Wednesday that the pace of the economic contraction in the United States is diminishing, and it won't be long before activity bottoms out and begins expanding again.

Speaking before the North Carolina Senate Appropriations Committee, Lacker stated that, while he believes the current recession is the most severe of the past 60 years, the economy is on the mend, citing new stability in housing and consumer spending.

If the emerging stability in housing and consumer spending persists, as I expect, some segments of business investment spending should bottom out by the end of the year and economic growth would then turn positive, he said.

However, he warned that the labor market would continue to weaken and that overall spending would likely bottom out before the unemployment rate peaks.

Lacker emphasized that the key to a full recovery will be to find a way to prevent inflation that will likely occur once the economy recovers.

The challenge for us on the Federal Open Market Committee will be to shrink our balance sheet and tighten policy soon enough when the recovery emerges to prevent rising inflation, he said.

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