NEW YORK – Economic sluggishness will continue, and third-quarter gross domestic product growth will show “an even slower rate” than the second quarter, New York Federal Reserve Bank President William Dudley said Tuesday.
“In recent months, the momentum of the recovery has slowed. For example, after rising at a 3.25% annual rate during the second half of 2009, there has been a progressive slowing-to a 2.75% annual rate during the first half of 2010 and, most likely, to an even slower rate when the third-quarter real gross domestic product (GDP) figures are released at the end of this month,” Dudley said, according to prepared text of his speech, which was released by the Fed.
Calling the employment situation “wholly unsatisfactory,” Dudley said demand growth is “barely keeping pace with firms' ability to increase productivity,” so “job creation has been too weak to significantly reduce unemployment,” while the inflation rate has dropped.
Dudley said, “it will likely be several years before employment and inflation return to levels consistent with the Federal Reserve's dual mandate.”
Several reasons for economic weakness are: soft spots are “typical” for the early stages of a recovery; the impact from the 2009 fiscal stimulus is “beginning to wane”; and “the usual hand-off from inventory-led growth to private final demand is not yet fully established.”
Consumer spending and housing remain weak, whereas in the past they have led the recoveries.
