Boston Federal Reserve Bank president Cathy Minehan said on Monday that she sees a "good chance" that tax cuts and a series of interest rate cuts may help the US economy recover later this year.
"The consensus forecast continues to see a pick up in the latter part of the year and I think there is a good chance that is what will happen," Minehan said in a speech prepared for delivery to the Boston Municipal Research Bureau.
"But this is by no means a certain outcome, and the preponderance of current economic data suggest that in the short run, downside risks are real," she added.
Minehan said Boston Fed economists were surprised at the pessimistic tone of their conversations with New England businesses at the end of May. She said their business contacts were nervous about the outlook and did not know when to expect an upturn.
"There is a distinct pause in firms' willingness to spend of capital equipment that played a key role in productivity growth earlier," Minehan said.
"Businesses are waiting to see clear signs that demand for their products has returned; I believe that will occur, but it's hard to see the turnaround in the data as yet."
Looking ahead, Minehan said the continued resilience of the consumer is "key" to keeping the economy growing.
"So far, apparently, consumers have not moved into recession mode."
The recently enacted US$1.35 trillion federal tax cut "may keep the consumer in a buying mood" if the labor market doesn't weaken, Minehan said.
The tax rebates enacted in the legislation should add between 0.5 to 0.75 percentage points to GDP growth likely split between the latter half of the third quarter and the first half of the fourth quarter.
But the bulk of the tax rate reductions should add the same amount to growth next year, she said.
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