Weak economy forecast for 6 months

WASHINGTON — The country's economic health is "very weak" and is likely to stay that way at least through the first six months of this year, a Federal Reserve official said Monday.

"Clearly the U.S. economy is in a tough fight against pernicious economic forces," Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said in a speech to businessmen in Georgia.

Lockhart this year is a voting member of the Federal Reserve Open Market Committee, the Fed's policymaking group. Led by Fed chairman Ben Bernanke, the panel sets interest rates and is leading the central bank's efforts to battle the worst financial crisis since the 1930s.

The economy probably shrank at an annualized rate of between 4 percent and 6 percent in the final three months of last year and likely will turn in a similar performance in the first quarter of this year, Lockhart said. The government will release fourth-quarter results at the end of January and will report on the first quarter in late April.

"Looking ahead, the overall economy is very weak, and I expect it will remain weak at least through the first half of 2009," he said.

But Lockhart was hopeful for "an improving economy in the second half" as financial markets stabilize somewhat. However, he added, "To temper that a bit, there is always the risk of a shock or reversal in the financial sector or elsewhere that could again alter the outlook to the downside."

Still, Lockhart sounded a tad more optimistic about recovery prospects than most private economists, especially after a grim report last week showed the nation's employment climate getting worse. The unemployment rate jumped to 7.2 percent in December, a 16-year high, as employers slashed another 524,000 jobs.

In a historic move, the Fed last month ratcheted down its key interest to hover between zero and 0.25 percent, a record low. The central bank signaled it would hold rates at such levels for some time to help cushion the blows of a recession that has just entered its second year. The Fed also pledged to use unconventional tools to help revive the economy.

"I want to assure you the Federal Reserve still has considerable ammunition in reserve to be used as needed" to turn the economy around, Lockhart said.