Fed's Kelley says U.S. can sustain productivity growth of 2.5 pct

PORTLAND (AFX) - Federal Reserve Board Governor Edward Kelley said that the U.S. economy can sustain annual productivity growth of 2.5 pct.

Kelley, speaking here before the Rotary Club of Portland on the Fed's policy formation, also stressed that the U.S. economy can sustain an overall long-term growth rate of between 3.5 and 4.0 pct.

He also emphasized it takes six months for Fed rate cuts to impact the economy.

Kelley said he is confident that the economy would see a pick-up over the next few quarters.

However, in a press briefing, he told reporters that the technology sector will take longer to recovery from the present downturn than other industries.

"I'm confident we will see steady progress beginning quite soon...over the course of the next few months," he said.

"The timing varies from industry to industry, and there's a good deal of consensus that the high tech sector may come back more slowly than others," Kelley noted.

He said high inventory levels and slowing sales are acting as a drag on a potential recovery in the tech sector.

Turning to energy prices, Kelley said if prices remain where they are it will not be a problem for the economy. However, if energy costs surge over the summer months this could hamper the economy's ability to sustain growth.

Asked about the Bush administration's 1.35 trln tax cut proposal over eleven years -- which is being debated in the Senate today -- Kelley said he welcomes tax cuts, but declined to comment on whether he agreed with its 

magnitude or structure.         

Anthony Santomero, president of the Federal Reserve Bank of Philadelphia, said earlier today that the economy should be capable of achieving an annual growth rate of 3-4 pct by 2002.

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