For immediate release: July 15, 2010
Dallas Fed: Economic Headwinds Abating; Downside Risks Remain
DALLAS—Since the second half of 2009, four major economic headwinds have been abating, setting the stage for economic recovery, according to the latest issue of the Federal Reserve Bank of Dallas’ Economic Letter.
In “Recovering from the Housing and Financial Crisis,” vice president and senior policy advisor John V. Duca and research assistant David Luttrell say four major recessionary impulses resulted from the recent financial crisis: home construction plunged, wealth fell, credit standards tightened and financial markets seized up.
By mid-2009, home construction had bottomed out, wealth had partially recovered and financial markets functioned better, the authors state. By late 2009, lenders stopped tightening credit standards on non-real-estate loans.
Though GDP growth resumed in third quarter 2009, the U.S. economy still faces downside risks, Duca and Luttrell say:
- Further losses on residential and commercial mortgages may delay a return of credit standards to normal.
- Large budget deficits may force state and local governments to cut spending.
- Foreign governments’ austerity measures will temper worldwide economic growth.
- Firms’ reluctance to hire may delay return to full employment.
“These uncertainties appear more likely to slow the pace of—rather than end—the economic recovery given how the four major headwinds from the recent crisis have been abating,” the authors write.
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