Former Federal Reserve chairman Paul Volcker warned on Thursday that the US faces a “considerable slog” in recovering from a deep recession and that any economic gains would be too mild for a while to make a big dent in stubbornly high unemployment rates.
Speaking to a group of Kentucky corporate and government leaders, Volcker said more manufacturing and exports are among the needed prescriptions, not additional consumer spending, to heal the steepest economic downturn since the Great Depression.
“It took years to get into the situation we’re in. It’s going to take some years to get out of it,” Volcker said at an afternoon-long economic round-table meeting in central Kentucky.
Volcker bemoaned some economic trends leading up to the downturn — a US savings rate that “practically disappeared” and a financial industry that became adept “at turning lousy credit into good credit, or that’s the way it appeared.”
“I think we have a considerable slog to get through,” he said.
Volcker, who served as Fed chairman from 1979 to 1987, said the nation’s unemployment rate could continue to rise in the near term.
The unemployment rate rose to a 26-year high of 9.8 percent last month and is expected to increase well into next year. Initial claims for state jobless insurance increased 11,000 to 531,000 last week, the Labor Department said on Thursday.
Meanwhile, the Conference Board said its index of leading economic indicators rose 1 percent to 103.5, the highest since October 2007, but optimism over the robust increase was tempered by a report showing that home prices fell 0.3 percent in August.
“The recovery will be pretty slow, too slow to reduce the unemployment rate very fast,” Volcker said.
White House economic adviser Lawrence Summers said in an interview on Wednesday the economy was set for a recovery, but cautioned that the pace of growth might be moderate and the job market would not revive immediately.
Boston Federal Reserve Bank President Eric Rosengren said the economy would grow reasonably in the second half of this year, but added that the Fed needed to see more progress before taking some of its economic support away.
Volcker, now a White House economic adviser, also said the Obama administration’s proposed overhaul of financial rules could turn into a tougher fight in Congress than the struggle to revamp the nation’s healthcare system.
Without going into specifics, Volcker said the administration would like to pass the financial rules bill this year, but said: “I think it’s more important to get it right than to meet a particular deadline.”
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