Michael Moscow, former president of the Federal Reserve Bank of Chicago, said we could expect a slow, sluggish recovery with unemployment most likely remaining above 7% through 2012, as he addressed attendees of the second annual CME Group Global Financial Leadership Conference in Naples, Fla.
Moscow led off an impressive group of speakers who all focused on economic conditions in light of the financial crisis the economy is still grappling with. Moscow said that inflation was not a problem short-term but does pose a problem longer-term. He said that as the economy slowly recovers, "the Federal Reserve will be under pressure to delay tightening monetary policy."
While not suggesting when they should act or by how much, Moscow said, "They will have to do it before employment is back," adding, "I think the Fed will do the right thing."
Moscow said the Fed’s job is complicated by the United States’ large fiscal deficit, which he described as "unsustainable," a theme echoed throughout the day by other speakers.
Following Moscow, a group of central bankers, including former Fed Governor Frederic Mishkin discussed the current economic condition in light of the credit crisis.
The panel compared the economy to a critical patient needing to be revived. While everyone on the panel agreed that the patient has survived emergency procedures and is out of intensive care, no one believes that it is back to normal.
Mishkin, who was at the Fed as it struggled with the fallout of the Lehman Brothers bankruptcy a year ago, said that the financial disruption was more complex than the shock that caused the Great Depression. He added that the Fed was faced with a choice of extending its activities and expanding its role or not expanding and risking another depression. "The probability of a depression was not low," Mishkin added.
Later former Fed Chairman Paul Volcker addressed the crowd after being delayed in Washington as the advisory committee he chairs met with President Obama.
Following the theme of past speakers, Volcker said of the economy, "the patient is out of the operating room and I think he is out of intensive care but I’m not sure about it."
"For a decade, this country has been living beyond its means," Volcker said. "It is unsustainable. It was [made possible] by the magic if financial engineering."
Of his meeting with the President, Volcker said that the President understands the importance of not having to rely on consumption and rebuilding our exporting capacity.