Philadelphia’s Plosser: Growth to Remain Sluggish

U.S. economic growth will be “sluggish” through the middle of next year, when it will return “to a sustained expansion,” according to Federal Reserve Bank of Philadelphia president Charles I. Plosser, who also predicted inflation “will remain above the level I view as consistent with price stability, before diminishing thereafter.” “Over the next several quarters I expect the economy to experience somewhat sluggish growth, primarily due to weakness in residential construction,” Plosser said at the University of Rochester yesterday, according to prepared text of the speech released by the Fed. “But I anticipate that by mid-2008, economic activity will be returning to near trend growth.”He said the economy “demonstrated its resilience” in the face of the subprime mortgage crisis, with gross domestic product up almost 4% despite that and weakness in auto sales. The unemployment rate is virtually unchanged in the past year, despite a decrease in average monthly new job creation.Despite the economy’s resilience, fourth-quarter GDP growth is expected to slow significantly, to around 2.5% year-over-year. Plosser said that is “slower than the 3% growth rate I was expecting when I spoke to you last year, but it is a respectable showing considering the prolonged weakness in residential construction, the high price of oil, and the financial market’s problems.”