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Summers says economy better but jobs still reeling

THE US economy has improved dramatically since the financial panic of late 2008, but a battered job market continues to cloud the outlook, top US presidential advisor Lawrence Summers said yesterday in New York.

The US unemployment rate stands at a 26-year high of 9.8 percent, and most economists expect it to continue rising before things begin to turnaround.

So while the situation is not nearly as grim as it was a year ago, when the collapse of investment firm Lehman Brothers exacerbated a global economic downturn, the recovery will be choppy, said Summers.

"We have come a long way from where we were last winter," Summers said at a conference sponsored by Bloomberg News. But he added: "We're in no position to declare victory."

Despite a bleak assessment of the employment picture, Summers downplayed the possibility the US economy would be relegated to some kind "new normal" of diminished consumption and increased joblessness.

"I would be very reluctant to accept the idea that the American economy no longer has the potential to grow very rapidly," Summers said.

Many economists believe the shock to the system from this recession, the worst in post-war history, will have a lasting impact on the nation's potential output.

Indeed, this is part of the reasoning behind the massive stimulus efforts of both the federal government and the US central bank. There is enough slack in the economy, policymakers argue, that such unprecedented monetary and fiscal accommodation does not have to become inflationary.

Fed Chairman Ben Bernanke reiterated that case yesterday, saying that while the Fed intends to keep interest rates at historic lows for a long time, it had the tools to eventually remove that liquidity when the time is right.

Summers said that in order to prevent future crises, the White House and the US Congress should enact comprehensive regulatory reforms. And they should strike while the iron is hot, since experience suggests enthusiasm for real policy change wanes as the markets heal.

"If you don't move quickly you may not move at all," Summers said.


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