Philly Federal Reserve Bank leader predicts growth

The President and CEO of the Federal Reserve Bank of Philadelphia tells business leaders in Delaware to expect economic growth over the next year.

In a speech to about 70 members of the Delaware State Chamber of Commerce Friday afternoon, President and CEO of the Federal Reserve Bank of Philadelphia Charles Plosser said he expects the Gross Domestic Product to grow at a rate of 3.5% through the rest of this year and into 2011.

Plosser says business spending is trending upward as companies rebuild inventory levels that had dropped during the height of the downturn.  He says consumer spending is on the rise again as well, but he says household spending will not return as quickly as in previous recoveries, “Because it’s going to take some time for labor markets to come back, and incomes to be able to grow more robustly.”

He expects job numbers to improve, but it will take time.  “We can’t forget that more than 14 million people are unemployed, and more than six million people have been out of work for more than six months.”  He says the possibility of weak job growth during the recovery does put the economic outlook at risk.

As far as the effort to reform financial regulations that is underway in Washington, Plosser says successful reform must include a credible commitment to allow big corporations to fail.  The availability or possibility of a bailout invites firms to take on too much risk and make themselves “too big to fail.”