Cleveland Federal Reserve President Sandra Pianalto said Wednesday that although it may be difficult to envision a recovery in the midst of the current recession, she remains confident that stabilization will take place by the end of 2009. Speaking to a Regional Growth Partnership conference in Maumee, Ohio, Pianalto predicted that actions taken by the government and the Federal Reserve would restore financial stability.

Although my baseline projection is for real GDP to weaken further in the first half of this year, I expect it to stabilize by the end of the year, Pianalto said in prepared remarks.

I have to warn you, however, that this outlook is subject to a number of strong downside risks, she cautioned.

Specifically she warned of the possible effects of a negative feedback loop, where turmoil in financial markets contributes to further economic problems, which sparks further turmoil in financial markets - starting a negative cycle. However, despite the severe risks, Pianalto said that the Federal Reserve is working to boost the economy.

In addition, she said that the nation's policymakers remain committed to maintaining a low and stable inflation rate.

I remain confident that we will get through this difficult period together - each of us contributing our part to the economic recovery, she said. I assure you that the Federal Reserve is actively working to restore growth in our economy while maintaining a low and stable inflation rate.

Pianalto is not currently a voting member of the Federal Open Market Committee.

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