welcome back. in the last year we've seen creative action coming out of the federal reserve for the first time in generations in terms of stimulating and sustaining the economic recovery. in a rare interview i spoke with the philadelphia federal reserve bank president charles plosser. we talked about unemployment as well as interest rates, and if the federal reserve has a plan to head towards light at the end of the tunnel. mr. plosser, nice to have you on the program. welcome. >> thank you very much. i'm glad to be here. >> it's good to see you. can you characterize where we are in the economic slowdown, first off. tell me what you are seeing. we have the fed minutes from the last meeting. get your viewpoints on this slowdown. >> right. well, i think that clearly the economy is in a traition period from very sharp contraction that we had in the last quarter and first quarter of this year to an expansion, and we're sort of bouncing around and making that transition. we're going to have some good news, and we're going to have some bad news yet to come, i

suspect, as the numbers come out, but gradually over the course of the next few months i expect the good news to become more dominant, and i'm looking for some growth in the second half of this year. >> where is the good news? can you take us through the growth part of the story within the u.s. or globally? where are you seeing the good news specifically? >> well, certainly it's true that we're seeing improved growth overseas. that's going to help our exports. we're seeing improved growth in factory orders. our own business outlook survey here in philadelphia and the third district shows that manufacturers are a lot more tiopstic, and, in fact, our business outlook survey became positive for the first time since december 2007, so there's clearly optimism, and there's opportunity for growth. >> so where are still the troubling parts of the economic slowdown? i mean, clearly unemployment remains a worry for many people. where would you say we remain seeing the biggest issues? >> well, i think unemployment clearly is a problem. unemployment rates tend to be a very lagging indicator in the economic recovery, and the

unemployment rates don't come down until well after economic recovery takes hold. that's going to continue to be an issue for many people, and it's a concern to us as well. i think the other big issue that we're waiting to worry about is the commercial real estate maet a its effect on the financial institutions in our economy. commercial real estate has not been doing well, even though residential real estate is beginning to recover. there's still lots of concerns about the impacts of declining values and commercial real estate and what that will do to our financial institutions. >> what is the fed's exit strategy? >> well, the exit strategy is really quite simple. we have to begin to pull back from our extraordinary programs. we have to begin to shrink our balance sheet. otherwise, we will fuel inflation in the months and years ahead. i don't think inflation is a problem in the very near term for the next several quarters, probably, but if we don't execute an exit strategy carefully, we could be setting the fires for inflation down the road in the next year or two, so we to be very careful. we have the tools to do that. the question is will we be able to discern the appropriate time and the timing of that to do it

in a way that will head off any future inflation? that may mean raising interest rates very rapidly. at least as aggressively as we cut interest rates if the team is right. >> in 2009? >> probably not. >> would you expect that once we were to see a beginning of a cycle of rising interest rates that it happens pour some time, or what? what would be the scenario? >> i think monetary policy is what we call state cob tingent. that is, it's going to depend on the state of their economy and how it's evolve examining how our outlook is evolving. monetary policy works with a fairly long lag. so what we are really looking at is not just what the economy looks like today, but how we think it's evolve and how our forecasts are evolving, and that's what it will depend on. >> let me askou about the role of the federal research. of course, preserving independent and decentralized central bank has been also a mashlg top ek. where are you on the reform that is on the table, and do you

worry that having a single regulator overseeing the system could be troublesome? >> well, the congress has gin the federal reserve its objectives, which is the dual mandate to promote economic growth and maintain price stability, and in order to do that, as i said, monetary policy works with some fairly long lags, so we to look to the future, and the forecast to determine policy acts. particularly in the realm of monetary policy. that means we often have to make decisions that at the time may seem politically very difficult, and having independence to be able to make those choices at the right time is an important effort -- part, element, of making an effective central bank. history has shown and the data shows that banks that don't have that political independence to make mob taer policy -- take monday opinion taer policy action even when it seems politically undesirable, end up with higher inflation rates and less economic performance. it's very clear that monetary policy needs to be independent of the short-run political pressures that many people try

to place on it. >> are you expecting a you shape or w shaep or v shape of economic recovery? what do you think the roer looks like? >> i really don't like any of these letters. >> i know. okay. so what -- how would you describe the recovery? scloo here's the way i think about it. i really do think we had a very massive to come to this economy, and to some degree it's going to be a permanent shock, or at least it's going to be very persistent. the notion that the level of output is going to get up to some path that we were on before i think is pretty -- it's probably not true. i think our trend path or potential output is lower than we thought it was just a couple of years ago. that means that we're not going to get this really, in my view, this really sharp, you know, 4%, 5% rebound that sometimes you see after recessions. we have more of a steady growth rate back to what the trend was that perhaps not the strong rebound that sometimes we see

after recessions. >> in terms of the most critical part to that recovery, the business investment? is it the consumer sentiment and spending or what? >> all of the above. all of those are clearly releva relevant. >> my thanks to charles plosser of the fed. coming up next on the "wall street journal" report, the ways you can save money when it comes to finances and your family. every dollar adds up. maybe even to $500 a month. as we take a break, take a look at how the stock market finished the week.

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sdmrimplt no matter how much money you make, you probably wish youco save more of it every month. my next xwes is donna rosato.

donna, good to have you on the program. >> great to be here. sdhoo this is a subject certainly near and dear to my heart because i'm a big saver. $500 a month seems like a lot to cia, though. some people are saying i'm living paycheck to paycheck. how the heck am i going to cia $500 a month? >> everybody wants to save more, but we came up with more than 10ways that you could save money. really trim the fat from your budget without really feeling a lot of pain. there are a lot of things you can do. >> how do you identify those cost cutting strategies that will actually add up? give me the strategies. >> well, think about all the costs -- the biggest costs in your life. tackle those things. a lot of people use credit cards. credit cards are very costly. rates are going up. fees are going up. one of the things you want to think about is there a way i can negotiate a lower rate on my credit card, and a lot of people can. >> what do you do? st call the credit card company and say i want a lower rate? >> you can do that, but you'll have more leverage if you have been a long-time customer, if if you have not been late on your credit card, and if you have a decent credit score, which today is about 750 or higher.

if you say i'm going to do a balance transfer, i'm going to transfer it to another company, can you give me a lower rate? if you have had a good relationship, you'll have some leverage. >> then you won't have those late fees? kill two birds with one stone. >> we know the banks are hurting, and fees are valley gone up. the average marriage bank charges $39 if you are late, and if you are late, your rate will probably go up too. set up a text or an e-mail alert so that you are never late on your payment. >> this seems sort of like the low-hanging fruit. what else is the low-hanging fruit, the easy stuff to cut out of my -- >> let me give you another one very easy. car insurance. very expensive. there are so many ways you can save. a really simple thing that won't really cost you anything, you have a deductible. if you raise your deductible to $250 to $500, you'll cia an average of 7% on your monthly premium. if you go fm $500 to $1,000, you'll save about 15%. you can get ae des count for

being a good driver. if you are a safe driver, can you get a discount. if you are a student who has good grades, you can get a discount for that. there's a lot of things you can do. another thing is if your car is kind of old, if you live in the city, you might have an old car. >> like a clunker. >> you may not need that collision insurance anymore, but here's a rule of thumb to know whether you need collision or not. if your car is worth less than ten times of what you are paying annually for collision insurance, you probably don't need it anymore. >> now, you write in the article also one thing that people may take advantage of, credit unions. how can they help a borrower save month to month? >> i'm a huge fan of credit unions. we all have to borrow sometimes, whether it's for student loans, a consider loan. credit unions have much lower overhead than banks, so -- and they also cater to their members. you have lower rates. for example, if you are going to have a four-year car loan, the averagecate rate at a major bank for a car loan is %. credit union, the average rate is 5.25%. if you save a lot, you'll pay less over the long-term, and those interest rates really add up. >> at the same time you are

trying to cia money, you also have goals in mind. you want to save for college. you want to cia for your child's wedding. how do i save for college? >> well, you want to make the cost of savings for college not cost you money. 529 plans are a great way to save money for college because you get a lot of tax advantages, so you don't have awe big tax bite. two-thirds of new 529 plans are sold by brokers, and brokers charge a really steep fee. you don't have to buy it pray broker. you can go to a website called saving for college.com and find out good plans and buy directly from a broker xshgs you'll save a lot. >> you also want to have some fun, though. you don't want to always seem like you are hoarding your cash. what about saving for vacations, saving for kids' activities. how do you do that? >> well, you know, kids can be very expensive. you want to send your kid away to camp, you know, you're still going to do it, but here's a smarter way to do it. with all of the flexible spend counts that allow you to put money away tax-free for medical costs, out of pocket medical costs. most people don't know that you can do that for chald care expenses as well, so if you are sending your kid to camp or have

daycare or elderly depend ebts, you can put dlashs 5,0 a year away tax-free in one of these ciaings accounts. you know, only 6% of people take advantage of them, but over 85% of large employers offer these kind of dpepdent care accounts. >> that's amazing. so many, you know, things that are sort of obvious, but you forget. great advice. thanks very much. we appreciate it. donna rosato, money magazine. coming up, we'll take a look at the week ahead and what will have an impact on finance and your money this upcoming week. then the united states capital wasn't always on the banks of the potomac. it was once in the heart of wall street. we'll take a look when we come back.

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check out the website, wsjr.cnbc.com. you will also find a lipg to my new blog, investor agenda. hope you'll check it out. now for a look at the stories coming up that may move the market and impact your money this upcoming week. on monday it is labor day. all u.s. markets are closed in observce othf e holiday.

thursday we get the international balance of trade. that reports whether the u.s. is importing or exporting more goods right now. then on friday the latest university of michigan survey of consumer sentiment will be released. well, the last few weeks we have been happy to be bringing you this program from right here. the historic corner of wall street and nassau in downtown lower manhattan. we're on the steps of federal hall's national memorial. this is the same site where george washington, our nation's first president, took the first presidential oath of office back in 1789. in fact, the bible used in that inauguration and the original balcony rail waub wash stood behind are on dilay in these walls. the current building was constructed as the first u.s. customs house. that was in the 1840s. this quarter was also the site of the first congress, supreme court, and executive branch offices. wall street and politics have always been close neighbors, and we have been proud to come from these steps to you for the last

several weeks. we thank everybody at federal hall for allowing us permission to do so. that's it f us. thanks so much for joining me on the "wall street journal" report. my guest next week murrell rubini who said we could be faced with a double dip recession. the econo t saw the economic emmroegs coming up, and we'll see what he thinks next. keep it right here where wall street meets main street. have a great week, everybody. i'll see you again next weekend.

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