Federal Reserve president expects economy to grow

By Heather Sullivan - bio | email

RICHMOND, VA (WWBT) - Richmond Federal Reserve President Jeff Lacker says the economy is looking up. He said he expects it to grow between 3.5 and 4 percent this year while speaking at a luncheon for a Richmond banking association today at the Omni Hotel in downtown Richmond.

Lacker spoke to about 250 members of the Risk Management Association, a group of bankers. He told them his short term economic forecast is that he expects consumer spending to be robust, but housing purchases to remain slow.

Retail sales over the holidays were up 12 percent. Auto sales were up 2.3 percent. That has Fed President Lacker seeing a brighter future.

"Many of our readings for the last quarter of 2010 point to a distinctly sunnier outlook. Most importantly, consumer spending is starting to show some real signs of life," Lacker said.

But it won't be all sunshine. Lacker says investment in housing is down 60 percent from where it was in 2005 and given the ongoing wave of foreclosures, he expects growth in home buying to remain slow.

He points out that job growth in Virginia has increased twice as fast as the national rate over the last year, and that Richmond is poised to add more jobs.

"Richmond metropolitan area's unemployment rate, at 7.4 percent, is higher than the state average, but we expect this will edge downward as job growth in the region gains momentum," Lacker said.

But he worries that increasing federal debt to stimulate the economy has risks, such as the Fed's decision in November to buy $600 billion in long-term U.S. Treasury securities.

"I was among those who viewed the benefits as outweighed by the risks, including the risk that a larger balance sheet might complicate the withdrawal of monetary stimulus, when the time comes to do so," Lacker said.

But he expects the Fed to re-adjust its Treasury purchasing as more economic development unfolds over the next few months.

Lacker told the group that the long-term economic outlook will depend on whether the federal government takes on too much debt to repair the economy and whether added taxes will affect businesses' ability to grow.

Copyright 2011 WWBT NBC12. All rights reserved.