Federal Reserve Board vice chairman Donald Kohn Monday night said his best guess is that the economy will begin a gradual recovery later this year with the help of monetary and fiscal stimulus, citing signs of stabilization in consumer spending and housing.

He said the impact of the Fed’s easy-money policy will “show through more clearly” once credit markets improve, and he anticipated that fiscal stimulus will also work “fairly quickly” to spur growth.

Given his expectation of a gradual recovery and given the likely continuation of large amounts of slack in labor and other markets, Kohn said inflation is likely to come under “further downward pressure.”

However, he said he and other members of the Fed’s policymaking Federal Open Market Committee are “acutely aware” of the threat of accelerating inflation as economic growth speeds up, and he said the Fed has the tools it needs to absorb money from the system and raise interest rates to contain inflation.

— Market News International


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