Growth to Stay Sluggish, Fed Official Says : Economy: But Vice Chairman Alan Blinder sees no evidence that recession lies ahead.

From Bloomberg Business News

The U.S. economy's growth is weak during the current quarter and will remain sluggish for two or three quarters, Federal Reserve Board Vice Chairman Alan Blinder said Thursday.

Growth in the economy's output faces "two or three rocky quarters, hopefully two," Blinder told reporters after speaking before the Minnesota Meeting, a group of academics, business leaders, journalists and other professionals.

The slowdown will be "followed by something close to normal growth," he said.

Should it appear that the economic slowdown will last more than two or three quarters, "that's the time to put on the worry cap," Blinder said. He hinted that, in that event, the Fed would cut interest rates to spur economic activity.

Blinder also said he hopes the economy won't be as weak in the second half of 1995 as it has been so far this quarter.

At the same time, he said, he does not want to see the economic expansion, now in its fifth year, end soon.

"There is abundant evidence of a slowdown, but there is not evidence a recession is on the horizon," Blinder said.

His comments came amid signs the U.S. economy is slowing. Among those are the loss of 101,000 non-farm jobs last month and a report released earlier Thursday that showed factory output declined 0.2% during May, the third consecutive month of decline in that measure.

The economic slowdown is the result of the Fed's actions to raise interest rates in an effort to hold economic growth at a non-inflationary pace.

Fed policy makers, beginning in February, 1994, nudged up the federal funds rate on overnight loans between banks, taking the rate from 3% to 6%. They will meet on July 5 and 6, and some analysts say prevalent signs of economic weakness may persuade the policy makers to begin cutting interest rates to encourage economic growth. For that to occur, of course, the committee would have to be confident that such a move would not cause inflation to accelerate.

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