By Brai Odion-Esene

WASHINGTON (MNI) – While the U.S. economy has recovered from the
many headwinds it faced in early 2011, “and is clearly starting to
firm,” the nation’s frustratingly high unemployment rate may not drop
below current levels this year, the U.S. Treasury’s chief economist said
Monday.

Assistant Secretary for Economic Policy Janice Eberly also warned
of the potential for further declines in home prices due to the large
amount of foreclosures on the horizon.

While “cautiously optimistic” about the near-term outlook, Eberly
said the Obama administration knows the economy still faces many
challenges, according to her statement to the Treasury Borrowing
Advisory Committee of the Securities Industry and Financial Markets
Association.

“Further progress this year in reducing unemployment from current
levels may be limited,” she said, adding that other potential banana
skins include the slowdown in growth overseas, particularly in Europe,
and the threat of further fiscal austerity at all levels of government.

While exports have provided significant support for growth since
the recovery began, a slowdown in the global economy and the likelihood
of recession in Europe is expected to cut into foreign demand for U.S.
goods and services going forward, she cautioned.

In addition, “We also remain concerned about the possibility of
financial spill-overs from the Eurozone crisis,” Eberly said.

The struggles of state and local governments remain a concern as
well, as finances remain constrained, “suggesting additional fiscal drag
on top of planned consolidation at the federal level.”

“The Administration remains committed to fostering stronger
near-term growth and a more rapid pace of job creation and to redressing
the country’s longer-term fiscal situation,” she said.

Housing is another area of the economy where the Obama
administration has yet to make any significant headway, although Eberly
noted that recent housing data have been more favorable, suggesting
conditions are starting to improve.

“Overall, home prices appear to be stabilizing,” she said.

However, “of concern, though, is the potential for further
declines, given the large stock of homes still in the foreclosure
pipeline,” Eberly said.

** Market News International Washington Bureau: 202-371-2121 **

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