Federal Reserve Governor Says Goodbye To Double Dip Recession

For the first time, a federal government official has said that that odds of a double recession are almost gone. Richmond Federal Reserve President Jeffrey Lacker, in an interview with Bloomberg TV,  said that the economic rebound was robust enough that it should carry into next year without slowing.

Fed watchers have been concerned for several months that an expanding economy might cause the Fed to raise interest rates. Lacker’s comments at least imply otherwise.

The Fed seems to be painfully aware that as unemployment hits 10%, which it may have in September, that a jobless recovery will need ready credit availablity to consumers and businesses so that fourth quarter retail and capital equipment spending continue on the path that they set the last two months.

The Fed has also made it clear that its activity in the mortgage securities markets are to help hold home loan rates down. That may be contributing to the fact that, despite a rapidly rising federal deficit and Treasury borrowing, mortgage rates are near historic lows.

The most likely period for the economy to slow or reverse again is at the end of the current, new quarter. There are significant worries that retail spending will be light again this year and that because consumer activity is such a large part of GDP that the expansion could stall.

The Fed, in its view, will continue to push a monetary policy consistent with the demands of keeping liquidity high. Along with that, all Mr. Lacker needs is a little help from the consumer.

Douglas A. McIntyre