Philly Fed Chief Reflects

Charles Plosser,President and CEO of the Federal Reserve Bank of Philadelphia,has been analyzing the problems in the economy.Our survey in Philadelphia shows manufacturers are more optimistic,Mr.Plosser said.Unemployment is clearly the big problem.The other issue that we're waiting to worry about is commercial real estate.The exit strategy for the Federal Reserve is quite simple:we have to shrink our balance sheet,or we could be setting the fires of inflation in the next year or two.Monetary policy works with some fairly long lags,and that means we have to look toward the future,making some politically undesirable decisions,Mr.Plosser observed.
Credit is not flowing at the easy rate it was a few years ago.That's gonna take some time.It's a balancing act between the demand for credit,and the supply of credit.In 2010,we will see the economy gaining traction,but there are still some risks out there,such as commercial real estate-also with fiscal policy.
We've had a very massive shock to this economy.The idea it's going back to where it was before is probably not true.There will perhaps not be the strong rebound we sometimes see after a recession,Mr.Plosser suggested.He was formerly an economics professor at the University of Rochester and a visiting scholar at the Bank of England.

Early Edition:Manufacturing Picks Up

The Empire State Manufacturing Index showed a big jump in new orders and shipments for July.The index rose 13% to a reading of 12.1.It is the first time the Empire State showed regional growth since February 2007.At the same time,the Philly Fed index showed a reading of 4.2 for July,versus -7.5 for June.A reading above 0 indicates expansion in Mid-Atlantic manufacturing.These positive readings are probably due to inventory replenishment,rather than a spike in consumer demand.As such,they may be only a temporary improvement.