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Markets News

Fed's Warsh warns of false optimism on economy

NEW YORK, June 16 (Reuters) - A top Federal Reserve official warned on Tuesday not to take recent gains in a range of asset prices as proof that the U.S. economy is on the verge of a strong recovery.

“The panic’s hasty retreat should not be confused with robust recovery,” Federal Reserve Board Governor Kevin Warsh said in remarks prepared for a speech to the Institute of International Bankers annual meeting in New York.

“The rather indiscriminate bounce off the bottom -- across virtually all assets and geographies -- may be more indicative of a one-time reset, which may or may not be complete.”

Warsh said private demand, the true arbiter of economic performance, “remains weak” and the jobless rate is likely to peak at a higher rate, and linger longer at high rates, than in recent recessions.

“The ‘jobless recovery’ may prove to be a familiar and vexing refrain,” he said.

“I would expect business capital expenditures and consumer spending to continue to disappoint for the next several quarters,” Warsh added.

Looking forward, the Fed “will not ... compromise price stability” buy monetizing large U.S. budget deficits, he said, warning that “financial markets may extract penalty pricing if fiscal authorities are unable to demonstrate a credible return to sustainable budgets.”

(Reporting by Ros Krasny, Editing by Chizu Nomiyama)

Ros.Krasny@thomsonreuters.com; 1 312 408 8592; Reuters Messaging: ros.krasny.reuters.com@reuters.net

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