US Treasury Secretary Henry Paulson said the financial crisis is winding down, but that it would take some time to fully emerge from the economic malaise.
"In my judgment we are closer to the end of the market turmoil than the beginning," Paulson said in a speech in Washington to business leaders.
"Looking forward, I expect that financial markets will be driven less by the recent turmoil and more by broader economic conditions and, specifically, by the recovery of the housing sector," he said in remarks prepared for delivery.
Paulson, a former chief executive of Wall Street investment bank Goldman Sachs, said that more time was needed for markets and investors to regain confidence and that they were re-evaluating risks.
"We should not expect to work through this process quickly and we should expect some bumps in the road ahead," he added.
"But we are seeing signs of progress as capital and credit markets stabilise," he said.
"The markets are considerably calmer now than they were in March."
He also predicted "a faster pace of economic growth before the end of the year", insisting that "our long-term prospects remain strong".
The economy grew at an anemic 0.6 per cent annual rate for the second straight quarter in the January-March period and risks tipping into a contraction in the second quarter of 2008. But analysts say a $168bn (Dh616.5bn) federal stimulus package as well the Federal Reserve's aggressive interest rate cuts could generate a rebound.
"Our economy is structurally sound, with long-term fundamentals that compare favourably to any other place in the world," Paulson said.
But, he cautioned, the correction in the housing sector crash that began two years ago after huge bank home-loan excesses "won't be resolved quickly".
"There is no silver bullet to undo the lax underwriting practices of recent years. Because of these past excesses, foreclosures will remain elevated," he said.
"The correction has further to go, and so we should not be surprised at headlines that note rising foreclosures and falling home prices." Underscoring that "housing is the biggest risk to our economy", Paulson noted the "critical" role of the government-chartered mortgage finance giants Fannie Mae and Freddie Mac, which provide funds for 80 per cent of all home loans. "It's never been more critical that markets have confidence in how these companies are overseen and regulated," he said, calling on Congress to complete a "meaningful" reform legislation to improve their regulation.