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Sustained Economic Recovery Expected by Bank Economists in 2010

According to the Economic Advisory Committee of the ""American Bankers Association"":http://www.aba.com/default.htm, the economy is on a sustainable recovery path, and job growth will return this year. However, a more rapid economic growth will be hindered by high unemployment and restrained consumer spending.


""We're on the cusp of private industry job creation, which will gain momentum throughout the year,"" said Stuart Hoffman, committee chairman and chief economist of ""PNC Financial Services, Inc."":http://www.aba.com/default.htm

The annualized inflation-adjusted real GDP growth rate is expected to be around 3.1 percent throughout 2010, roughly half the normal pace following deep recessions in the past. While this growth will be just above the economy's long-term trend, it will not be enough to reduce the unemployment rate much below 10 percent by year-end, according to the committee.

""The recession technically ended last year,"" Hoffman explained. ""However, the normal rapid economic rebound seen in the first year or so following past deep recessions will not occur.""


The economy has been boosted by improving financial conditions and accommodative monetary and fiscal policies. As a result, the committee expects that private sector spending, investment, and employment will gather large momentum, which will sustain the recovery even as the policy stimulus wanes.

Labor income and home prices, though, remain depressed, which will prevent rapid gains in consumer spending throughout the year. On the other hand, the committee expects the availability of credit to improve, and Hoffman noted that banks are working hard to ensure that customers, both consumers and businesses, will have access to that credit.

""As business confidence continues to improve, inventory and capital investments will increase, and lending will expand,"" Hoffman said.

According to the bank economists, the constraints on economic growth are holding down inflation. The consensus is that ""core inflation,"" excluding food and energy costs, will be 1.2 percent in 2010. Overall consumer inflation (PCE measure) is expected to be 1.6 percent, due, in part, to rising oil prices.

The committee said low inflation will allow the Federal Reserve to hold short-term interest rates near current low levels during the first half of the year. The group expects the Fed to start raising the target federal funds rate in the second half of 2010, but only to three-quarters of one percent by year-end. In addition, the bank economists anticipate 10-year Treasury yields to rise to 4.4 percent, and mortgage rates are projected to rise to 6.2 percent by the end of the year.

ABA's Economic Advisory Committee meets twice a year to provide perspectives on the national and local economies to top policymakers and is comprised of 12 individuals from financial institutions across the nation.

About Author: Brittany Dunn


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