Fed's Fisher--Jobs picture bleak despite recovery

DURHAM, North Carolina (Reuters) - The U.S. economy has been weakened so severely by deep recession that the job market is unlikely to recover for a while, despite an expected return to growth over the last half of the year, Dallas Federal Reserve President Richard Fisher said on Friday.

The comments followed a government report showing unexpectedly high job losses in September that dealt a blow to hopes an economic recovery might be gaining traction.

"I call it ... post-traumatic slack syndrome," Fisher said at Duke University's Sanford School of Public Policy. "We have so much slack in the economic system, we are seeing deflating or disinflating prices."

As businesses seek to cut costs, they will keep payrolls trim, said Fisher, who will not be a voter on the Fed's policy-setting panel until 2011.

"I would say it's going to be some time before we get back to decent employment numbers," he said.

Growth is currently being generated by government spending and tax cut programs, not private sector investment, Fisher said.

The Fed has responded to signs the economy may be healing by moving to phase out some of its support programs. It has also promised to keep interest rates ultra-low for a long time to protect the fragile recovery.

Fisher's comments spotlight a debate among policy-makers about what should guide their actions: fears the rebound could falter or worries that the Fed's massive stimulus might spark inflation if not withdrawn in time.

Articulating the other side of that discussion, former Fed Chairman Alan Greenspan said the more than doubling of the Fed's balance sheet through actions to cushion the economy from the downturn risks sparking inflation. While there is no urgency now, there is a danger of acting to slowly to shrink the balance sheet, Greenspan said at a conference on Friday.

A poll of the 17 firms that deal directly with the central bank found most believe the Fed will wait to raise its benchmark federal funds rate until the second half of 2010, after the jobless rate has peaked.

(Reporting by Ned Barnett in Durham, Kristina Cooke in New York and Mark Felsenthal in Washington, writing by Mark Felsenthal, Editing by Chizu Nomiyama, Diane Craft, Andrew Hay)