WASHINGTON - THE sense of 'freefall' for the US economy is likely to end in the middle of the year, though the road to recovery could take some time, Lawrence Summers, US President Barack Obama's top White House economic policy aide, said on Thursday.

'I think the sense of a ball falling off the table - which is what the economy has felt like since the middle of last fall - I think we can be reasonably confident that that's going to end within the next few months and you will no longer have that sense of freefall,' said Mr Summers, director of the White House National Economic Council.

US DOLLAR A SAFE CURRENCY Asked about the ability of the world's largest economy to sell its debt going forward, Lawrence Summers said the United States benefits from the fact that the US dollar is regarded as a safe currency and should protect its status. "On days when the markets are suggesting increased uncertainty, increased doubt about the global economy....those are days almost always when Treasury bond prices rise," Mr Summers said. ... more

The recovery is likely to be slowed by 'substantial downdrafts' in the economy.

'Economies don't go from losing 600,000 jobs a month to a terribly happy path overnight,' Mr Summers said in remarks to the Economic Club of Washington, noting that there are 'still substantial strains in credit markets'. The economy lost 663,000 jobs in March, leaving the economy down 5.1 million jobs since the start of the downturn in December 2007.

The decorated economist and former Treasury secretary said it remained unclear how long it would take for the economy to return to strong, sustained growth, though he did cite 'anecdotal' signs of improvements in credit markets that would allow inventory cycles to return to normal.

The US unemployment rate, at a quarter century high of 8.5 per cent, is likely to edge higher because unemployment typically lags an economic rebound and needs the economy to grow at a rate of 2.5 per cent to remain stable.

'Even if we got a return to positive growth, an economy that was growing at 1 per cent would be an economy with rising unemployment. I don't think we can hold out the prospect we'll stabilize at the current level,' he said, deliberately declining to provide a forecast for peak unemployment.

The economy contracted at a 6.3 per cent annual rate in the fourth quarter of last year, the steepest pace since 1982.

Mr Summers said policy-makers needed to be wary of risks for both inflation and deflation, adding that near term deflation risks were part of the reason for the Obama administration's strong fiscal stimulus efforts and programs to support credit markets.

'I don't think the concern about deflation in the nearer term is one that can be entirely discounted,' he said. --REUTERS