While all eyes and ears were on President Obama's speech on the economy in Ohio yesterday, the head of research for the San Francisco Fed gave his take on the economy in Salt Lake City.  John C. Williams delivered a speech he titled "Sailing into Headwinds: The Uncertain Outlook for the U.S. Economy" to San Francisco and Salt Lake City Branch Boards of Directors.  Williams told the audience that he is "confident we will find safe harbor," even as the pace of economic recovery is painfully slow.

Economists like to be precise in their descriptions. In a talk a month ago I described the pace of growth as "moderate," bordering on modest. Well, since then, we've clearly moved well into modest territory. Yet, despite this loss of momentum, the recovery continues to tack forward, fighting stern headwinds. Why has the pace of economic recovery been so underwhelming? Real GDP grew about 3 percent over the past four quarters. This pales in comparison to the 7¾ percent growth seen in the first year of the recovery from the last very deep recession, the one that occurred in 1981 and 1982. It's more like the two most recent recoveries, the ones that occurred at the beginning of the 1990s and after the 2001 recession. These were far more muted, giving rise to the unhappy phrase "jobless recovery."

Some of the recent weakness is surely due to temporary factors that will end. But, others are likely to endure. Economists have identified several major factors contributing to the weak recovery. Perhaps most notable is the fact that the recession followed the worst global financial crisis since the Great Depression. Research has clearly demonstrated that economic recoveries that come in the wake of banking and financial crises tend to be slow and painful.1 This pattern reflects the critical role that credit plays in greasing the wheels of economic activity. Following a severe crisis, the process of rebuilding the health and confidence of borrowers and lenders alike is a long, drawn-out affair. Second, U.S. households are straining under mountains of debt accumulated during the housing boom and for years before. We had become a nation of borrowers, not savers, and we are now having to make painful adjustments. Consumers, normally reliable participants in recoveries, are standing on the sidelines. They feel compelled to repair their finances in lieu of cruising the auto showroom or shopping for 3-D TVs. Meanwhile, businesspeople have been left extraordinarily cautious and averse to all kinds of perceived risks, whether from the economy, financial markets, or government policies. On top of that, the construction boom of the mid-2000s created an enormous overhang of houses and other structures that will take years to work off. Finally, monetary policy has reached the limit of what it can do by conventional means. The Fed's benchmark policy interest rate is already effectively at zero, the lowest it can go. The Fed can't reduce short-term interest rates any more than it already has. That constrains Fed policy and has prompted us to turn to unconventional programs to stimulate the economy, such as buying mortgage securities in order to lower long-term interest rates.

Read the full text of the speech here.