By Alister Bull
MIAMI (Reuters) - Recent U.S. economic data has been grim, and financing strains in the commercial real estate sector could heap pressure on the country's already battered banks, a top Federal Reserve official said on Wednesday.
"Problems in residential real estate are well known. But, with continued economic weakness, I'm increasingly paying attention to commercial real estate," Atlanta Federal Reserve Bank President Dennis Lockhart said in prepared remarks.
"Declining commercial real estate markets could put further pressure on already strained financial institutions and markets. And overcoming problems in the financial sector is central to achieving economic recovery," he told the Greater Miami Chamber of Commerce in a luncheon address.
Banks have around $2.5 trillion worth of commercial real estate loans on their books, and while this was less than a quarter of the size of the residential mortgage market, any more strain on the financial sector would be most unwelcome, Lockhart said.
"Commercial real estate finance challenges could further complicate efforts to stabilize the banking system and credit markets," he said.
The Fed has cut interest rates to almost zero and more than doubled the size of its balance sheet to around $2 trillion through programs to support private lending in a bid to prevent a yearlong recession from getting much worse.
Lockhart, a voting member of the Fed's policy-setting Federal Open Market Committee this year, said the economy should begin a modest recovery in the second half of the year. But he warned that this outlook was subject to unusually high uncertainty.
"Looking broadly at the national economy, the recent numbers have been discouraging," he cautioned, noting there had been a 6.2 percent annual rate of decline in U.S. output in the fourth quarter of 2008.
"Other incoming data give little reason to be upbeat about the immediate future. Unemployment continues to rise," he said, noting that jobless claims had been worse than generally forecast.
But he stressed that Fed moves to steady the ability of households to tap credit markets had gained traction and assured his audience that the Fed would do what it takes to restore U.S. growth.
"I want to assure you that the Fed has the capacity to act, even with the federal funds rate near zero, with the aim of returning the country as quickly as possible to its enormous potential for growth and prosperity," Lockhart said.
(Reporting by Alister Bull; Editing by Jonathan Oatis)
