Wednesday, February 27, 2008

Federal Reserve vice chairman Donald Kohn shared his thoughts on the state of the American economy to an overflowing crowd at the University of North Carolina Wilmington: "I do not expect the recent elevated inflation rates to persist…in my view, the adverse dynamics of the financial markets and the economy have presented the greater threat to economic welfare in the United States."

Kohn's February 27 address during the annual Business Week of the Cameron School of Business came a day prior to Reserve chairman Ben Bernanke's scheduled appearance before Congress, where he is slated to deliver the Reserve's monetary policy report.
He explained that higher energy prices, rising costs of imported goods and upward pressures on commodities may be increasing consumer prices.

Although his current review of the state of the economy was bleak, he highlighted that by mid-2008, the economy should begin to benefit from the fiscal stimulus package passed by Congress, and other economic factors.

"Lower interest rates will not stop, only cushion housing markets," he predicted. However, he projected more economic stability in late 2008 to 2009, as the instability of the housing market and mortgages begins to clear.

"The most likely scenario is one in which the economy experiences a period of sluggish growth in demand and production in the near term that is accompanied by some further increase in joblessness," Kohn foreshadowed.

To students and business leaders, Kohn emphasized the Reserve's role in maintaining price and, ultimately, national economic stability. He said, "We have the tools. As chairman Bernanke often emphasizes, we will do what is needed."