Fed's Lockhart sees recovery this year

But pace of expansion likely to be modest

Current economic conditions are mixed at best, Atlanta Fed Chief Dennis Lockhart said today in prepared remarks, but the economy appears to be in stabilization mode. "Stabilization necessarily precedes recovery. A recovery has not yet taken hold but should begin before too long."

Lockhart pointed out deep recession are usually followed by strong recoveries. This time around he said, "I expect real growth to resume in the second half and progress at a modest pace. I do not see a strong recovery in the medium term."

And there are risks to "this subdued forecast," with problems in commercial real estate potentially disrupting his forecast.

The CMBS (commercial real estate mortgage-backed securities) market is very weak, Lockhart said, and banks generally have no appetite to roll over loans on properties that have lost value in the recession.

Refinancing problems will not directly affect GDP—it's commercial construction that factors into GDP—but he is concerned problems in commercial real estate finance could adversely affect the otherwise improving banking and insurance sectors.