March 27 (Bloomberg) -- Federal Reserve Bank of Atlanta President Dennis Lockhart said the U.S. economy appears to be on the verge of recession with little growth this quarter and a recovery in the second half of the year may be slower than expected.

``The economy is in a slowdown that resembles past periods that were the leading edge of a recession,'' Lockhart said in a speech to the Rotary Club of Chattanooga, Tennessee. ``Following a sluggish fourth quarter, I expect that GDP for the first quarter of this year will show little, if any, growth.''

The economy expanded 0.6 percent at an annualized pace last quarter and economists surveyed by Bloomberg News this month predicted the rate will slow to 0.1 percent in January to March. Martin Feldstein, the Harvard economics professor who heads the research group that determines when downturns begin, said this month that a contraction had already begun.

Lockhart said he didn't have enough evidence to declare a recession had started, though the economic outlook this year has worsened amid a housing slump and credit market turmoil.

``The contraction in housing and the dampening effects of financial turmoil on household and business spending could persist through the remainder of this year,'' he said. ``The recovery in growth I had expected in the second half of this year may be delayed.''

The comments by Lockhart, who doesn't vote on interest rates this year, were his first since the Fed cut its target rate by three-quarters of a percentage point on March 18 amid increasing recession worries. Two colleagues -- Dallas's Richard Fisher and Philadelphia's Charles Plosser -- dissented and preferred a ``less aggressive'' move because they were worried about inflation.

Inflation `Elevated'

Lockhart said inflation has been ``elevated'' in recent months and become a ``more prominent concern,'' adding he continues to expect price increases to moderate with a slowing economy.

Futures traders are betting that the Fed will need to lower its main interest rate further, by a half percentage point. The central bank cut the rate from 5.25 percent in August.

The Fed's preferred core inflation gauge, which excludes food and energy, rose 2.2 percent in January for a second month, equal to the fastest pace since March.

Lockhart said Fed policy has been primarily directed at financial markets, which remain unsettled.

``With regard to financial conditions more broadly, markets have not yet stabilized,'' he said. ``Financial system stability is a central focus of Fed policy at the moment.''

Senate Probe

The Senate Finance and Banking committees said they are reviewing the taxpayer-backed sale of Bear Stearns Cos. to JPMorgan Chase & Co. The Fed, in an emergency action earlier this month, authorized a $29 billion loan against illiquid mortgage- and asset-backed securities from Bear Stearns.

`` This action was taken to bolster market liquidity and promote orderly functioning of short-term funding and credit risk markets,'' he said.

Lockhart said Fed actions have been made with a ``prudent acknowledgement'' of risks, amid a ``perilous'' environment. ``Given the likelihood of continued financial and economic uncertainty, the public authorities charged with achieving and maintaining financial stability must preserve the capacity to act decisively in the best interest of the economy as a whole,'' he said.

To contact the reporter on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net.

Last Updated: March 27, 2008 12:40 EDT