CRANBERRY TWP — A U.S. Federal Reserve economist says there are some positive signs that the problems with the financial markets are beginning to ease in part because of the new policies and assistance programs of the U.S. Federal Reserve Bank.

However, he said the country is not out of the woods yet with its economic crisis and also fears of increased inflation by some economists and government officials are valid.

John Carlson, senior economic adviser to the Federal Reserve Bank of Cleveland, Thursday presented his views of the financial turmoil, economy and the reserve's policy response at a forum presented by NexTier bank at the Marriott Pittsburgh North.

Federal Reserve officials are prepared to do everything possible to prevent both inflation and deflation, and they are not anxious to repeat the problems inflation caused the country in the late 1970s and early 1980s.

Carlson pointed out that there was not just one cause to the current recession. Bad subprime loans were a part of the problem, but so were the bad loan incentives of the rating agencies who based their bond ratings on the assumption that the house markets would continue to rise. Also investors who did not do their due diligence when making their investments helped to create financial problems.

Economic recovery could begin in the second half of this year, Carlson said, but it should not snap back quickly because consumers have adjusted their habits in response to the recession.

One of the changes, Carlson predicted, that would come from the recession is that consumers, who previously used their homes as a source of liquidity, would have to save more and put more money down on larger expense items.

Carlson added federal reserve officials will have to focus on an exit strategy from its current stimulus mode, but make sure they don't roll back economic stimulus programs too quickly without firm indicators of an economic recovery.