Federal Reserve governor says U.S. economy is in a panic!
WASHINGTON - April 6, 2009 - The U.S. economy is in a state of a panic that predated the official recession and may have significant long-run implications, a Federal Reserve official said Monday.
In remarks to the Council of Institutional Investors, Fed Governor Kevin Warsh said that while the pace of economic decline was likely to abate, "I am decidedly uncomfortable forecasting a sharp and determined resumption of growth in the coming quarters."
Warsh used the word "panic" more than 30 times in his speech - entitled "The Panic of 2008" - and said both faulty private practices and flawed public policies were to blame for causing it.
While Warsh did not comment specifically on monetary policy, his speech alluded to one of the thorniest issues facing the central bank: when and how to pull back some of the trillions of dollars that it has pledged to support the financial system.
Some Fed officials have expressed concern that removing liquidity too slowly will trigger a dangerous bout of inflation. But Warsh's comments suggested he is concerned that the financial crisis may have done lasting damage to the economy's potential growth, so pulling away supports too soon could throw the economy into a tailspin.
"The panic conditions that have marked this period may also have long-run implications," he said. "I suspect that the process of an efficient reallocation of capital and labor will prove slower and more difficult than is typical after recessions."
