US economy will take 'years' to return to pre-recession level, Paul Volcker warns

The US economy will take 'years' to get back to pre-recession levels of growth, Paul Volcker, a former Federal Reserve chairman and adviser to President Obama, warned.

Published: 6:44AM BST 17 Sep 2009

Mr Volcker, who ran US economy policy for more than a decade at the Fed and is credited with driving inflation from the US in the early 1980s, said "it will be a long slog - a matter of years - with the risk of some relapses along the way."

Ben Bernanke, the current chairman of America's central bank, said this week that the recession is probably over. With the $2 trillion (£1.21 trillion) policy blitz by governments and central banks having pulled the global economy back from the brink of a depression, the focus has now switched to how strong a recovery will be and how to avoid a repeat of the financial crisis.

'Speaking at a conference in California, the 82-year old said that "we have a long way to go to get back to the point of fully utilizing our economic resources and restoring something approximating full employment."

Unemployment is still climbing in the US, a problem mirrored across all major economies, despite the sharp contraction in output having eased. Most experts predict the growing number of people out of work will prove a significant drag on an economy emerging from the worst financial crisis since the Great Depression of the early 1930s.

A year on from the bankruptcy of investment bank Lehman Brothers, Mr Volcker also signalled that reform of the financial services industry had not gone far enough to rein in the riskier parts of the banking system.

“I do not think it reasonable that public money --taxpayer money -- be indirectly available to support risk-prone capital market activities simply because they are housed within a commercial banking organization,â€