Different Views on Recession End

Jeffrey Lacker, Richmond Federal Reserve President, believes that recession will end this year. On the other hand, Thomas Hoenig, Kansas City Federal Reserve President, believe that the slow and steady growth will not begin until next year. However, both agree that there will be a risk of inflation when the economy recovers.

Two Federal Reserve officials have opposing views on the recovery of the U.S. economy.

Jeffrey Lacker, Richmond Federal Reserve President, and Thomas Hoenig, Kansas City Federal Reserve President offer different views on when the recession will come to an end. Lacker said that growth will resume by year end due to the spending drive of U.S. consumers and the Fed’s injection of unprecedented stimulus.

On the other hand, Hoenig is less confident about this. He said that the economic outlook still looks uncertain and that it would take the rest of this year just to move out of the recession phase. He added further that the economy will be on a path of slow, steady growth in 2010.

Nevertheless, both officials agree that the Fed should be aware of the inflation risk upon the economy’s recovery. In fact, other policymakers warned that removing the stimulus too quickly could put the country back in recession.

In addition, a huge surge in inflation and undermining long-term economic growth could also be responsible to make it harder for the government to attract buyers and fund its budget deficit.

Hoenig also noted that once the recovery begins, political pressure may keep interest rates low, therefore threatening the ability to shift policy and independence of the central bank. He warned that before any problem about inflation appears, the Fed needs to immediately address these potential pitfalls today.
 

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