Fed exec says economic growth will resume

(AP) - The recession will continue and credit issues likely will weigh on the economy for some time, but a resumption of growth should not be too far off, a regional Federal Reserve executive said Thursday.

Gary Stern, president of the Federal Reserve Bank of Minneapolis, told a crowd of several hundred attending an economic summit in Sioux Falls that he thinks business activity will pick up, especially given the economy's fundamental resilience.

"Interest rates are low and financial conditions are improving, albeit unevenly," Stern said. "Major fiscal policy stimulus is now under way and should add to aggregate demand in a timely way unless consumers and businesses turn exceedingly cautious."

"Interest rates are low and financial conditions are improving, albeit unevenly."

Stern leads the Fed's ninth district, which includes the Dakotas, Minnesota, Montana, the Upper Peninsula of Michigan and parts of northwestern Wisconsin.

He said the region initially avoided many of the recession's effects but has since fallen in line with the national economy.

The beauty of diversified economies such as those found in the Dakotas and Minnesota is that states are not dependent on any one industry, he said.

"On the other hand, if you've got a broad-based recession of the type we have, virtually all industries are affected," Stern said. "It's hard to get away from it."

Brad Anderson, retiring chairman and chief executive of Best Buy Inc., headquartered in Richfield, Minn., said consumers have pulled back on spending and renewed their focus on saving. But the trend should not be viewed as a threat to retailers, he said.

The U.S. consumer remains the main driver of the world's growth, he said. Best Buy's goal is to establish long relationships with consumers and "the last thing we want is our customers to get themselves in trouble," Anderson said.

"I actually don't want consumers to reverse some of the more conservative trends that they're exhibiting," he said.

Sen. John Thune, R-S.D., said federal spending has gotten out of hand and is creating much anxiety in the financial markets. The U.S. government should take some cues from residents who are having to make tough choices, he said.

"We see families tightening their belts. We see small businesses tightening their belts," Thune said. "The one area where there hasn't been a lot of belt tightening has been Washington, D.C."

Stern said it's essential to restore the health of financial institutions and markets so long-term projects can get financing.

The initial stage of the recovery is likely to be "subdued," he said.

"There is historical precedent for this, since the recovery of the early 1990s was initially quite modest, as was the recovery earlier this decade," Stern said.

(Copyright 2009 by The Associated Press. All Rights Reserved.)

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