Federal Reserve Bank of Philadelphia President Anthony Santomero said on Friday that rising U.S. joblessness would likely extend a U.S. recession, but forecast the economy would begin to recover in mid-2002.

He said monetary policy in the United States had not lost its potency to help engineer an economic rebound -- unlike in Japan, which is struggling through its fourth recession in a decade.

"The softness in labor markets puts pressure on consumer spending and consumer confidence. That is why I think we have a bit longer to go before this recession turns its corner," Santomero told reporters at a forum on monetary policy.

But he was optimistic for next year, noting the Fed's aggressive interest rates cuts are beginning to take effect and that U.S. consumer spending, which fuels two-thirds of the economy, has been resilient.

"At this point, the consumer has held up reasonably well," Santomero said. "I personally think we are looking at mid-2002 for the beginning of the recovery."

He said some sectors, such as housing and orders for big ticket manufactured goods, appeared to be responding to the Fed's aggressive 4.5 percentage point easing this year.

Durable goods orders posted their biggest gain on record in October, according to data released by the Commerce Department Thursday. October retail sales rose 7.1 percent, recovering from a 2.2 percent fall in September.

Those hopeful signs have been tempered by more sobering employment data.

Initial jobless claims for the week ending Nov. 24 jumped 54,000 to 488,000, while the number of people stuck on the jobless rolls posted their biggest one-week jump in 27 years, reaching 4.02 million, the government said on Thursday.

Santomero suggested that a fresh economic stimulus package being thrashed out in the U.S. Congress could help advance the timing of a rebound.

"Clearly to the extent that fiscal policy becomes more stimulative, it will change our forecast," Santomero said.

The recent rise in long-term U.S. Treasury market rates was in part due to market confidence in a recovery next year.

"There is a good deal of truth to that vote of confidence perspective," he added.

U.S. Not Japan

Santomero said monetary policy in the United States, unlike in Japan, remained potent, and said any further reductions in U.S. interest rates should depend on incoming economic data rather than the fact the key fed funds rate is already at a four-decade low.

"The path to renewed expansion is likely to be longer and far more difficult in Japan than it will be in the United States. By contrast, monetary policy is far more likely to be effective in addressing our slowdown than was the case in Japan," he said.

The Bank of Japan has lowered interest rates to near zero, but Japan remains mired in its fourth recession in a decade. While the Fed has slashed the fed funds rate 4.5 percentage points since January to a four-decade low of 2.0 percent, the U.S. has yet to mount a comeback from recession.

Santomero said the concerns that U.S. monetary policy may be losing its effectiveness were off the mark.

"In short, U.S. monetary policy clearly maintains its potency as a counter-cyclical policy tool," he told policymakers.