Chicago Federal Reserve President Mr Michael Moskow said today that although there was still considerable excess capacity in the economy, that should diminish over time and growth will regain momentum.
Mr Moskow said: "Looking ahead to the second half of the year and into 2004, there are reasons to be optimistic for stronger growth," citing productivity gains, the decline in the dollar, tax cuts and low interest rates.
Mr Moskow said the Federal Reserve has studied alternative courses of action in case the federal funds rate reached zero, but that the Fed believes it is "unlikely we will face this problem".
"We think it's prudent to avoid having to turn to such alternatives," he said.
Mr Moskow, a voting member of the Fed's policy committee, said the Fed's rate cut in late June was taken, in part, to provide extra insurance against that scenario.