The immediate outlook for U.S. growth is grim but forceful policy action will help end the country's year-long recession, top officials for the Federal Reserve said on Wednesday.
Looking broadly at the national economy, the recent numbers have been discouraging, Atlanta Federal Reserve Bank President Dennis Lockhart told the Greater Miami Chamber of Commerce.
Other incoming data give little reason to be upbeat about the immediate future. Unemployment continues to rise, said Lockhart, a voting member of the Fed's policy-setting Federal Open Market Committee this year. He told reporters that he was apprehensive about the February jobs report, which is due on Friday.
Analysts polled by Reuters expect a loss of 648,000 jobs last month, compared with a 598,000 loss in January, with the U.S. unemployment rate rising to 7.9 percent from 7.6 percent.
The Fed has cut interest rates to almost zero and more than doubled the size of its balance sheet to around $2 trillion through programs to support private lending in a bid to prevent the downturn from steepening.
U.S. economic conditions got worse in January and February and businesses do not expect improvement until late this year or early 2010, the Fed said in a separate survey on Wednesday.
National economic conditions deteriorated further, the Fed said in its Beige Book summary gathered from districts around the country. The deterioration was broad based.
The rapid decline in U.S. growth is the worst since the early 1980s and there is no recovery yet at hand.
All indicators thus far point to our economy being on track for a decline of roughly the same magnitude in the first quarter of 2009, said Dallas Federal Reserve Bank President Richard Fisher, speaking in Fort Worth, Texas.
2008 was an annus horribilis -- a truly horrible year that only a sadist could look back upon with pleasure, Fisher said.
We might call this the Godzilla economy -- it presents a monstrous challenge.
Fisher, who is not a voting member of the FOMC this year, told reporters he was the most pessimistic of all of his colleagues about the prospects for 2009 and feared the country might suffer two years of recession.
Lockhart said he still expects the economy to begin a modest recovery in the second half of the year.
But he warned that the outlook was more unclear than usual and that deteriorating financing conditions for the commercial real estate sector could add to the strain already heaped onto battered banks, after the economy shrank at an annualized 6.2 percent rate in the last quarter of 2008.
Problems in residential real estate are well known. But, with continued economic weakness, I'm increasingly paying attention to commercial real estate, he said.
Declining commercial real estate markets could put further pressure on already strained financial institutions and markets. And overcoming problems in the financial sector is central to achieving economic recovery, he said.
Banks have around $2.5 trillion worth of commercial real estate loans on their books, and while this was less than a quarter of the size of the residential mortgage market, any more strain on the financial sector would be most unwelcome, Lockhart said.
Commercial real estate finance challenges could further complicate efforts to stabilize the banking system and credit markets, he said.
But Lockhart stressed that Fed moves to steady the ability of households to tap credit markets had gained traction and assured his audience that the Fed would do what it takes to restore U.S. growth.
I want to assure you that the Fed has the capacity to act, even with the federal funds rate near zero, with the aim of returning the country as quickly as possible to its enormous potential for growth and prosperity, Lockhart said.
(Additional reporting by Ros Krasny in Fort Worth, Texas and Mark Felsenthal in Washington; Editing by Kenneth Barry)