The economic and financial situation in the US remains difficult, according to vice chairman of the Federal Reserve Board (FRB) Donald Kohn.

Economic activity is likely to firm during the second half of 2008 and then gather some strength next year, Mr Kohn told onlookers at the National Conference on Public Employee Retirement Systems Annual Conference in New Orleans this week.

He also claimed that consumer spending may well increase due to the rebates that taxpayers are now receiving.

Discussing recent economic developments in more detail, the vice chairman indicated that spending on consumer goods, including new motor vehicles, "has been soft" of late as Americans have come to terms with trillions of dollars of debt.

"Since last fall, rising prices for energy and food have made a significant dent in the purchasing power of consumers' incomes," Mr Kohn remarked.

Prices of homes have reportedly dropped recently, while credit conditions are said to have tightened. "In reaction to these adversities, households seem to have become extremely downbeat about prospects for jobs and income," he continued.

Earlier this month, the FRB made a move to protect consumers by proposing new rules to prohibit unfair credit card and overdraft practices.

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