WASHINGTON -- There is mounting evidence the recession is ending, but it is possible any recovery will not have much punch to it, two senior Federal Reserve officials said in separate comments.
The remarks by Federal Reserve Board Governor W. Edward Kelley and Richmond Federal Reserve Bank President Robert Black seemed to reinforce expectations in the bond market that Fed officials are inclined to keep short-term interest rates unchanged.
Mr. Kelley testified before the Senate Banking Committee yesterday, and Mr. Black gave his views in a telephone interview late Monday after the markets closed. Both said they supported the view of Federal Reserve Board Chairman Alan Greenspan, who said last week in Japan that he saw signs the recession is drawing to a close.
But Mr. Kelley and Mr. Black said it is possible any recovery will be sluggish.
"Things are looking better," Mr. Kelley said. "As new data come forward, it looks more and more as if this recession is bottoming out. What that says about whether we will see approximately the level where we are now for an extended period may be another matter."
It is possible the economy will stay flat for some time, Mr. Kelley said in response to a question from committee Chairman Donald Riegle, D-Mich., but "the normal dynamics of the American economy would indicate that there will be a rebound that will follow in due course."
"I'm discerning very little lift in the economy, frankly," Sen. Riegle replied, noting that thousands of workers in Michigan are running out of employment benefits. "If we are bottoming out, that may be cold comfort if we're likely to stay on a plateau of very sub-par economic performance."
"I think we are near the bottom if we are not actually starting up," Mr. Black said. "But that's just a wild guess. I hope that's where we are."
Mr. Black said he was encouraged by the latest purchasing managers' report, the May unemployment report released last week by the Labor Department, gains in the index of leading economic indicators, and lean business inventories.
He said he was not impressed, however, with arguments that consumer debt levels are too high to permit renewed spending, which is crucial to sustained economic growth. He noted that housing sales have been increasing in the past several months. Analysts expect to get a better idea about consumer spending when the Commerce Department reports today on retail sales.
But Mr. Black said any recovery is likely to be impeded by sluggishness in commercial real estate, reluctance of banks to lend the way they did in past recoveries, and slower growth in exports.