Lacker Sees Weak Growth, Admits Recession Possible

While he expects weak growth in the near term, with the economy picking up later this year, Federal Reserve Bank of Richmond president Jeffrey Lacker said Friday that if business spending slows this year, it could lead to a recession.

“With the strains in housing persisting, a substantial slowdown in business spending could raise the odds of a recession. This risk would be heightened if December’s job market weakness proved persistent, pulling down prospects for personal income and household spending,” Lacker said in a speech to the Risk Management Association in Virginia, according to prepared text released by the Fed. “Nevertheless, I believe the most likely outcome is for growth to continue and to improve.”

Events in the last half of 2007 caused downward revisions in expectations for 2008, Lacker said, adding that “the recent flow of data has heightened the downside risks” to the economy.

Tighter lending standards will continue to restrain the housing sector, according to Lacker. “Home construction is unlikely to bottom out this year, and I expect housing investment to continue to be a drag on growth through at least year-end,” he said.

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