By Mark Felsenthal
In an unusually sobering assessment, Richmond Federal Reserve Bank President Jeffrey Lacker said he thought the most likely outcome would be continued sluggish growth, as long as the job market did not sputter.
"If job growth is positive in the months ahead, and if wages can stay ahead of inflation, then income growth should be sufficient to support consumer spending gains and allow us to skirt the boundary of recession," he said.
Lacker said on Tuesday more rate cuts may be necessary to hold off a downturn.
However, he added that if economic indicators are not weaker than expected over the next several months, "it's not clear further rate cuts would be warranted."
Lacker's acknowledgment of the possibility of recession comes as economic data increasingly point to weaknesses in the economy and is among the most pessimistic assessments of the economy by a Fed official since private economists began warning about rising recession risks this year.
Lacker told reporters after his speech that the services report bumped up the possibilities of recession.
A report that appeared after the Fed cut rates showed employers shed 17,000 jobs in January, the first decline in payrolls in 4-1/2 years. Lacker said in his speech that there was some possibility that the underlying trend is stronger than those numbers suggest.
A well-known inflation hawk, Lacker said persistently high levels of inflation continue to trouble him and limit the Fed's choices in thwarting recession.
However, he said that in spite of the Fed's aggressive rate cutting last month, the chance that the central bank will run short on ammunition to fight the slowdown is "minimal."
