Yesterday, at the Economic Forecast Forum in Raleigh, North Carolina, Federal Reserve Governor Elizabeth A. Duke gave a speech entitled, The Economic Outlook.
Governor Duke’s speech began by outlining recent economic and financial developments and went on to provide her personal views on the economic outlook for 2010, stating that “The recent news on employment, production, and spending has been encouraging,” citing job losses in November 2009 as the smallest since early 2008, although she warned that hiring remained weak. On the production front, she highlighted the Federal Reserve’s industrial production index, which has risen for the past five months, as well as increased domestic and business spending in recent months. In the financial sector, Governor Duke also referenced improved equity, short-term funding, and securitization markets as examples of improvements, and specifically cited the Term Asset-Backed Securities Loan Facility (TALF) as a catalyst for improvement in the securitization markets. However, she cautioned that reduced consumer access to, and demand for, credit were likely to persist.
With respect to the economic outlook for 2010, Governor Duke said that it “depends importantly on our ability to build on the progress to date in improving the operation of financial markets and restoring the flow of credit to households and businesses.” With respect to housing in particular, she anticipates that low mortgage rates and housing prices will continue, and said that, “even a gradual strengthening of demand should lead to an upturn in homebuilding.” Governor Duke was less optimistic about commercial real estate, however, citing reduced cash flows due to renegotiated leases and strained credit conditions as concerns for the sector. Additionally, Governor Duke was somewhat pessimistic about employment, saying that, “Even as the unemployment rate begins to decline later this year, it likely will remain high by historical standards.”
Governor Duke ended her remarks with a discussion on Federal Reserve policy, noting that, “the FOMC continues to anticipate that economic conditions are likely to warrant exceptionally low levels of federal funds rate for an extended period.” Nonetheless, she said that, “As the year goes on, I anticipate that we will see more signs that the improvements in financial markets, credit conditions, and business sales are reinforcing each other, leading to greater confidence and improving the prospects for 2011.”