A Little Optimism From the Fed About Our Uneven Recovery

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Federal Reserve Bank of Richmond President Jeffrey Lacker said in a speech Tuesday that the pace of the economic recovery has picked up. According to Bloomberg, he indicated that the Fed's "extended term" of keeping interest rates low may end sooner than many analysts expect.

In his comments, Lacker distinguished between the views of economists and those of small-business owners and working people. "I suspect that most of you have heard that the recession is over, and I also suspect that few of you feel like the recession is over," he told business leaders in Morgantown, W.Va.

Lacker's speech is another indication that powerful forces in the Fed now believe low rates are not in the best interest of the U.S. economy. "Easy money" can cause risk-taking and bubbles in commodities markets, and even in home prices in some parts of the country. But job formation has not begun in any meaningful way, and small businesses are still plagued by a lack of access to the credit they would require to expand and create jobs. That leads the "doves" within the Fed to believe low interest rates will need to be maintained until 2011.

The problem, as Lacker hinted, is that the economy is improving unevenly. Many large American companies that have access to capital markets have begun expanding again. In some sectors, earnings are rising rapidly. Tuesday's strong first-quarter results from Intel (INTC) show that parts of the tech sector are doing very well. And March auto sales numbers signal a recovery in that industry.

But the people of West Virginia may not be buying the Fed talk of raising rates: Intel isn't based in their state.
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