“Federal Reserve officials say they expect a modest and gradual recovery in the economy next year rather than the quick turnaround many investors and forecasters are expecting,” writes Richard Stevenson in today’s New York Times.

“That suggests the central bankers are open to at least one further interest rate cut and may keep rates lower for longer than financial markets anticipate.”

“The officials said the recovery could be tempered by a variety of forces, from high levels of consumer and corporate debt to the reluctance of companies to invest in new factories and equipment at a time of uncertainty in the economy and the fight against terrorism.”

” ‘I am of the opinion that the recovery will not begin until mid-2002,’ said Anthony M. Santomero, president of the Federal Reserve Bank of Philadelphia. ‘I think the forecasters are overly optimistic.’ “

“Many private economists are predicting that a rebound will begin no later than the spring, and perhaps much earlier. Ian Shepherdson, an economist at High Frequency Economics, a consulting firm in Valhalla, N.Y., said he expected slightly positive economic growth in the current quarter, after a return to relatively healthy growth rates next year.”

” ‘I’m looking for a reasonably robust recovery that will surprise people with its speed and magnitude,’ Mr. Shepherdson said.

“Chris Varvares, president of Macroeconomic Advisers, a consulting firm in St. Louis, said economic growth should resume in the first quarter of next year. ‘Our forecast is for what would be called a V- shaped recovery,’ he said, referring to the prospect that the downturn that began in March will be followed by a strong upturn soon.”

“Fed officials said they also saw evidence that the recession could be coming to an end relatively soon. But in several interviews, some granted on conditions of anonymity, most stressed their belief that the turnaround was likely to be slow in getting off the ground and that any real recovery might not begin in earnest until summer. They suggested that the economy might end up being more sluggish than recent statistics suggest.”

“Even the more optimistic among them said there were considerable risks that could hinder the economy through much of next year. Before Sept. 11, many Fed officials were predicting that the economy was on the verge of stabilizing if not recovering.”

“On the plus side, the officials pointed to shrinking inventories, low energy prices, a rebound in the stock market, relatively strong consumer demand and the effects of the interest rate cuts and tax reductions already in the pipeline. And there was fresh evidence today that the economy might be close to bottoming out.”