The recession is probably over and the U.S. economy is beginning a slow recovery, marked by an absence of jobs and low inflation, Roger Ferguson, a former vice chairman of the Federal Reserve, said Thursday.
Evidence for a recovery is inconsistent. The stock market is signalling the recession is over. But unemployment is likely to remain high for some time and business profits are being driven by cost-cutting instead of sales, Ferguson said.
"Broadly speaking, we are in the process of exiting the recession, but it is uneven, depending on which sector you look at," said Ferguson, now CEO of pension-fund giant TIAA-CREF.
Ferguson was at the University of Utah to speak about the economy and how faculty members can build safe retirements. The university is a TIAA-CREF client.
He said the recovery will be lengthy. Banks battered by the subprime mortgage crisis and bad loan portfolios will need to improve their financial condition before they lend again.
At the same time, consumers must also fix their finances before they are willing to begin spending again. Consumer-spending accounts for about 70 percent of U.S. economic activity.
"We've seen that the consumer rate has popped up, and that is good for the economy in the long run. But it does mean that the recovery is going to be relatively slow," Ferguson said.
Inflation is likely to remain in check unless the Federal Reserve, which has kept short-term interest rates near zero for several months, waits too long to move rates up again.
He said the Fed's decision on Wednesday to keep the key federal funds rate unchanged reflects Chairman Ben Bernanke's view that the economy is no longer in recession but is too fragile to begin raising interest rates again. The federal funds rate is the interest rate set by the Fed that banks charge each other for loans.
"They do have a challenge to think about the exit strategy. They don't want to raise too quickly, but nor do they want to delay the inevitable too long," Ferguson said.
Former President Bill Clinton appointed Ferguson to the Fed in 1999 to fill an unexpired term. Ferguson was reappointed in 2003 by former President George W. Bush. He stepped down in 2006.
After leaving the Fed, Ferguson became chairman of Swiss Re America Holding Corp. He was responsible for Swiss Re's proprietary asset management unit.
TIAA-CREF named Ferguson as its president and chief executive in 2008.
