Economic turmoil and the resulting global recession have generated a need for strong action from U.S. fiscal policymakers, Federal Reserve Bank of Atlanta President Dennis Lockhart said Thursday. Speaking at Bank of France a conference on food stability in Paris, Lockhart said that financial stability is essential in order to spark an economic recovery.

Functioning credit markets are absolutely necessary for economic recovery, Lockhart said.

He noted the Treasury's plan to combine public and private investment with the goal of buying up toxic assets from bank balance sheets, bolstering the financial system and unfreezing credit flow.

Many actions have been taken to stabilize the U.S. financial system, and further very important measures are in train, he said. For instance, the removal of legacy toxic assets from bank balance sheets is an essential step.

Although there are some encouraging signs, Lockhart warned that the recession will likely get worse before it gets better. A slew of largely positive economic data, including encouraging reports on durable goods orders and new home sales, has sparked hope in the U.S. While Lockhart called such reports encouraging, he noted that they don't necessarily signal the end of the recession in the U.S.

Specifically, he warned that a former bright-spot in the economy, U.S. exports will likely remain subdued as global demand remains slack.

In my economic outlook for the remainder of 2009, I do not expect a sudden return of exports as a driver of recovery in the United States, Lockhart said.

The recent sharp contraction of trade appears to be far more severe than would be expected given the decline in global economic activity, he added.

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