Fed Sees Later Recovery Than Analysts --- Officials Say Contraction Could Last Longer; Rates May Fall Further
WASHINGTON -- Federal Reserve officials appear to be less optimistic about economic recovery than many private analysts, and that suggests interest rates could remain low for a while or even fall again.</br></br>"I believe recovery will occur around mid-2002 -- a few months later than the median forecast predicts," Anthony Santomero, president of the Federal Reserve Bank of Philadelphia, said in a speech. He was one of five Fed officials to speak so far this week. Their comments, while more upbeat than they have been for months, suggest they are less impressed with the run of positive economic reports, ranging from capital-goods orders to home sales, than private forecasters and investors.</br></br>Mr. Santomero, for example, said it may take longer than expected for companies to rebuild inventories, something optimistic analysts are counting on to generate higher production and an imminent recovery. He said consumer spending, though resilient so far, could retrench if big layoffs persist.</br></br>A Wall Street Journal poll of 54 forecasters found that two-thirds expect the economy to grow in the current quarter, and almost all expect growth in the next quarter.</br></br>But Fed officials see more risks. Richmond Fed President Alfred Broaddus said in a speech that while the consensus forecast is "the most probable outcome . . . I think there's a good chance that the economy may be at least a little softer than the consensus over the next year or so." He cited the risk that continued weak profits will hold back business investment. On Monday, Atlanta Fed President Jack Guynn said the economy would probably contract "for another quarter or two." While he cited several positive forces for "significant" recovery, including low energy prices and interest rates, he projected second-half growth of "around" 3%, less than the 3.6% consensus, at an annual rate.