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Plosser sees economy recovering

The economy is recovering, and the recovery is sustainable even as fiscal and monetary stimulus programs begin to wind down, former Simon Graduate School of Business dean Charles Plosser said Tuesday.

Plosser, now president and CEO of the Federal Reserve Bank of Philadelphia, was the featured speaker at the 31st annual economic seminar sponsored by the Simon School, Rochester Business Alliance Inc. and JPMorgan Chase and Co. at the Hyatt Regency Rochester.

Home prices have stabilized, manufacturing and industrial activity is showing positive signs, and job losses in recent months are trending down, Plosser said.

However, the strength of consumer spending is harder to judge, he said, in part because of the Cash for Clunkers program.

“This rebate program likely diverted some spending toward automobiles and away from other goods and services that households may have been planning to buy,” he said.

Plosser does not expect strong growth in consumer spending in the coming months because high unemployment will restrain income growth, he said.

He expects 3 percent growth in the gross domestic product over the next two years.

The outlook for inflation is becoming more uncertain, Plosser said.

“Uncertainty still looms large,” he said. “Large fiscal deficits and the prospects for significantly higher taxes to fund new programs have made many businesses reluctant to undertake new investments or to rehire workers.

“This may not diminish until greater clarity is offered by Congress and the administration about the prospective path of fiscal policy. This policy uncertainty could contribute to a weaker than otherwise recovery and its resolution may affect longer-term prospects for the economy.”

(c) 2009 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail rbj@rbj.net.

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