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NEW YORK, March 20 (Reuters) - The U.S. economy is recovering, Federal Reserve Bank of New York President William McDonough said on Wednesday.

2002 Gala Celebrates Leaders of Resilient New York Honorees Charles R. Lee, Paul Greengard, William J. McDonough, Eric R. Kandel with Academy President, Jeremiah A. Barondess

Speaking after receiving an award from the New York Academy of Medicine, McDonough said the economy was "coming back" and that the Fed had employed monetary policy, "the quickest tool to use," in 2001 to forestall further economic weakness.

He said that while the Fed had eased monetary policy from the start of 2001, the attacks of Sept. 11 required a further response from monetary policy-makers.

"We realized that however much we had done (by Sept. 11) was not enough," McDonough said.

The Fed's decision to ease monetary policy again when the U.S. stock market reopened after the attacks was a way of saying to the American people that its central bank would be there to support the economy, McDonough said. "We were not going to let those evil people bring the economy to its knees," he said. "We did what was necessary."

McDonough's remarks came a day after the Federal Reserve ended a policy meeting, leaving interest rates unchanged but dropping its long-held recession warning, saying the U.S. economy was growing at a "significant pace." The policymakers, who cut interest rates 11 times last year to combat economic weakness, voted unanimously on Tuesday to leave the federal funds rate, which influences borrowing costs economy-wide, unchanged at a 40-year low of 1.75 percent. The more symbolic discount rate was also unmoved at 1.25 percent. Another of the Fed's key tasks after the Sept. 11 attacks was to ensure that the nation's payment and settlements system worked, McDonough said. He cautioned, though, that as the U.S. economy comes back and as the New York City economy recovers, it was necessary to remember the city's poor, those who cannot qualify for unemployment insurance because they have never had a job.

Thursday March 21, 10:24 AM

NEW YORK (Dow Jones)--The interest-rate easing done by the Federal Reserve last year, especially those actions that followed Sept. 11, were essential in getting the U.S. economy back on its feet again, Federal Reserve Bank of New York president William McDonough said Wednesday.

"We are already now in economic recovery" in large part due to the monetary policy actions taken by the Fed, McDonough said. He is a voting member of the Federal Open Market Committee. Tuesday's meeting of the committee paved the way for higher interest rates sometime later this year.

During 2001 the Fed trimmed its overnight interest rate to 1.75%, the current level, from 6.50%. A number of those easings came after Sept. 11, when the Fed sought to shore up already faltering economic activity.

McDonough said that the hard-hit economy of New York City is also rebounding. McDonough's views on the economy fit in with the views of the broader economic community, which believes the recession that began last spring is already over. McDonough was speaking New York where he had received an award from the New York Academy of Medicine.

-By Michael Derby, Dow Jones NewsWires; 201-938-4192; Michael.Derby@Dowjones.com

Posted on March 20, 2002

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