WASHINGTON – Despite a push from five interest-rate cuts, the economy is likely to remain mired in a slowdown into the summer, Federal Reserve board member Laurence Meyer suggested Wednesday.
Many economists are hopeful that the Fed's aggressive action will allow the economy, which began to weaken in the second half of last year, to skirt a recession this year. Some predict growth will pick up and the country will be on track for a healthy 2002.
Such a forecast is "reasonable" but there are still "some downside risks to that outlook," Meyer said in a speech to economists in New York. A copy was distributed in Washington.
"There are no signs yet that the economy is strengthening relative to its first-quarter performance, and growth is likely to remain sluggish into the third quarter," he said.
Meyer also suggested there won't be any big boom when the economy does revive. He said, "It is unlikely that we will see a repeat of the exceptional performance from 1996 through mid-2000 on the other side of the slowdown."
The economy grew at an annual rate of 1.3 percent in the first three months of this year, following an anemic 1 percent rate in the fourth quarter of 2000.
The Fed's five half-point interest rate cuts, which began on Jan 3, have driven borrowing costs down to the lowest point in seven years. But it takes roughly six to nine months for the cuts to show up in economic activity, meaning the full effect hasn't made its way through the economy yet.
Federal Reserve Chairman Alan Greenspan, in a May 24 speech, also delivered a sober assessment.
At the time, Greenspan warned of "considerable uncertainties'' in the economic outlook. He said there was still a threat that business activity could weaken further.
Greenspan's remarks bolstered the view among some economists that the Fed would cut interest rates by another half-point when it meets next on June 26-27. Some economists, however, believe the central bank may opt for a more modest quarter-point reduction.
Meyer, also in a May 24 speech, said that the central bank needed to be alert to the possible threat of inflation, a point he repeated Wednesday.