My guess is, it's going to pay to be patient at this point, especially with the developments we've seen on the energy side, where, at least from my perception, some of the concerns about inflation and some inflation expectations seem to have diminished.

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I think it will be some time before we see growth at or above trend in this economy.

I expect that in the second half of this year we will broach zero growth.

As reported by Reuters.

Although widely used economic barometers haven't yet signaled the formal beginning of a recession, there is a chance one lies ahead, Federal Reserve Bank of Richmond President Jeffrey Lacker said Tuesday.
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"Even if we get through this energy price bulge and inflation moderates, I'm still concerned of the overall pattern we've set," he said.
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Although risks to economic growth persist, Lacker said, "For us to lose substantial ground on inflation would be much more costly for us to remedy than for us to have to face a more substantial slowdown in growth than we've seen so far."
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"A 2% federal-funds rate with overall inflation running at 4% is an exceptionally low real interest rate - lower than we've had in the post-war record," he said. "Monetary policy seems quite stimulative to me on that basis."

"We can't sustain inflation at this pace," Lacker told reporters following at the Richmond Fed's Charlotte branch. "Moderation in growth by itself isn't likely to bring down inflation dramatically."

As reported by Reuters.

My own outlook for the rest of this year is for continued sluggish growth and weakness in labor markets. My 2008 forecast is for GDP growth of around 1.7 percent, which is near the upper end of the range of FOMC participants’ projections...The recent failure of IndyMac and the problems of Fannie Mae and Freddie Mac are the most recent events that have shaken confidence in our financial institutions and markets. This has raised the uncertainty surrounding forecasts for the economy, including my own. As I have said before, and as these recent events demonstrate, the road to recovery is likely to be a bumpy one.

Nevertheless, I continue to be generally more optimistic about 2009. As the housing market gradually completes its necessary adjustments and investors and the public regain confidence in financial markets, economic growth should return to its long-run trend of about 2¾ percent next year and the unemployment rate will gradually decline to about 5¼ percent by the end of 2009.

My outlook is that headline personal consumption expenditure (PCE) inflation will remain near 4 percent in 2008, reflecting in part the increase in energy prices. I expect core PCE inflation to be around 2½ percent this year.

In 2009, as energy and other commodity prices level off, I expect both measures of inflation to be lower — in the 2 to 2¼ percent range by the end of next year — provided we set monetary policy appropriately to restrain inflation and keep inflation expectations well-anchored.

I expect only modest improvement in the second half of this year, with GDP growth in a range of 1 to 1.5 percent.  Growth will be supported over this period by the fiscal stimulus from the tax rebates, from further strength in exports and government spending, and from the current accommodative stance of monetary policy.  Indeed, growth is likely to be relatively strong in the third quarter because of the rebates and then may soften noticeably in the fourth quarter.
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I am disappointedly, even less optimistic about the inflation outlook over second half of the year.  Indeed, I expect both overall and core inflation measures to rise further over the next several months.

To the extent that the economy as we watch it ... avoids recession, and to the extent that you watch commodities, you do want as quickly as possible to get back to neutral.  If you can do that, the implications for the long run are much more favorable in terms of inflation expectations and how it gets embedded into the economy.
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The goal is to get to neutral without tanking the economy. I think that it is important that we do that as reasonably soon as we can.

Earlier this year, many observers extrapolated this slowdown into an outright decline in economic activity and concluded that the economy was in or about to enter a recession. But the data we've seen since then have not yet shown the sharp, widespread reversals that define a recession. While the risk of an acute near-term downturn has not entirely disappeared, it has diminished substantially.
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I expect growth to be positive, but quite modest for the rest of this year, and to gradually pick up over the course of next year. Although the downside risks to growth are by no means negligible, they have diminished significantly to my mind since the beginning of the year.

Now I'd like to pull all of these threads together to give you my outlook for the economy. Activity has been weak since late last year, and, given the three shocks I've discussed, I expect the economy to grow only modestly for the remainder of the year, but to pick up next year. The earlier policy easing by the Federal Reserve will help cushion the economy from some of the effects of the shocks, and the fiscal stimulus program is helping at present. Over time, the drag from housing will wane and credit conditions should improve.

Before discussing the current economic situation—that is, where things stand now—let me set the stage by describing briefly how we got here. To get a little fanciful with the stage-setting metaphor for a moment, it is a bit like the opening of Macbeth, with the three ghastly witches brewing up trouble amid thunder and lightning—only here, the three troublemakers are the housing market, the financial markets, and commodity prices.

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Now I'd like to pull all of these threads together to give you my outlook for the economy. Activity has been weak since late last year, and, given the three shocks I've discussed, I expect the economy to grow only modestly for the remainder of the year, but to pick up next year. The earlier policy easing by the Federal Reserve will help cushion the economy from some of the effects of the shocks, and the fiscal stimulus program is helping at present. Over time, the drag from housing will wane and credit conditions should improve.

The economy has been quite resilient to the adverse shock from the recent financial turmoil, but the analysis of its sources I outlined earlier suggests that it will take a substantial amount of time to complete the cleanup of the financial mess and to get the financial system fully back on its feet...The resulting slow recovery of financial markets that I think is likely suggests that the U.S. economy will be subject to substantial headwinds for some time. Indeed, the situation may be comparable to what happened in the early 1990s when the weakened condition of the banking industry in the United States led to a relatively slow recovery in economic activity. Thus, growth could continue to be quite weak, though I would hope it would pick up next year.

My base case forecast for the economy involves a stronger-than-expected first half of 2008 with growth of 1 to 2 percent but not much pickup in the second half. The drag of high energy costs, continuing financial market stress, and a still-declining housing sector may continue for a while with gradual improvement of growth in 2009.

There is much uncertainty surrounding this outlook. More adverse alternative scenarios are entirely possible. Self-reinforcing progressive deterioration could continue in the housing market, in turn affecting the financial markets. And neither the financial markets nor the overall domestic economy is protected from surprise events around the world.

The resultant slowdown in the growth of economic activity in the United States and Europe could well cast a shadow on the prospects for Asian countries.

As reported by Bloomberg News 

Business spending on equipment and software has also been firmer than I expected...The sense I get from our contacts is that most organizations have a large menu of options to improve and rationalize their information technology infrastructure and business processes in valuable ways, and they foresee a continual stream of spending on such projects.

I have followed the economy closely for much of my professional career and have learned two important lessons that are relevant today. First, don't underestimate consumer resilience....And second, don't underestimate the power of monetary policy.