Evans: Sluggish Economy To Continue Into 2009

Economic sluggishness will continue in 2009, and it’s unclear when a recovery will begin, Federal Reserve Bank of Chicago president Charles L. Evans said yesterday.

“Because of the economic headwinds we face, real economic activity is likely to be quite sluggish in the second half of this year and into 2009,” Evans told the Association for Manufacturing Technology, according to prepared text of the speech released by the Fed. “I expect that growth will pick up as financial markets make headway in working through these problems, and credit flows improve somewhat. Still, the level of uncertainty surrounding this time path is very high.”

Noting the economy “faces difficult challenges,” Evans said, the Federal Open Market Committee “must continuously reevaluate our policies in light of current and forecasted conditions to ensure that our assessments of risks are aligned to meet our long-term policy objectives of maximum sustainable growth and price stability. Currently, these risk evaluations must factor in substantial uncertainty in the outlook for both growth and inflation. In particular, there is a great deal of uncertainty over how the intensified stress in financial markets we have seen over the past few weeks — and the policy responses to them — will play out over time and in turn how this path will affect the economy.”

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