Fed's Lockhart says world will feel U.S. slowdown
Sat May 17, 2008 9:50am EDT
WASHINGTON (Reuters) - U.S. exports have been helped by a weaker dollar and this is providing a boost to an otherwise weak economy, Federal Reserve Bank of Atlanta President Dennis Lockhart said on Saturday.
"The U.S. dollar has depreciated against the euro and on a trade-weighted basis. The export sector of the U.S. economy has benefited and remains quite strong. Export growth has diluted - but not offset - the negative trend of the U.S. economy," he said in prepared remarks.
A copy of his speech, to the Southern Center for International Studies Young Professionals in Atlanta, was released to media in Washington prior to delivery.
The dollar has slipped to record lows against the euro and other major currencies this year as the Fed slashed interest rates to offset the fallout from a housing crisis that has chilled growth. Its benchmark overnight funds rate has been lowered since September to 2 percent from 5.25 percent.
"The U.S. economy is in the midst of a pronounced slowdown, with very little growth recorded for two consecutive quarters. The weakness was initially centered in the housing sector but has become more widespread," Lockhart said.
He also described inflation as "elevated" due in part to higher energy and commodity prices. But he did not dwell on how he saw price pressures evolving in the speech, and mainly focused on the prospects for emerging economies.
"Global economic integration has progressed in recent years to the point that a slowdown in the United States will unquestionably be felt, but not as severely as imagined by some," Lockhart said.
"Domestic growth momentum in many emerging economies will attenuate the influence of U.S. weakness. And the accumulation of foreign currency reserves by these countries - the result of trade surpluses - provides an accessible resource to stimulate their own domestic growth to offset weaker exports, should that weakness materialize," he said.
Lockhart also said there were good reasons why emerging economies were investing their foreign exchange reserves in more mature capital markets like the United States.
Lockhart said the money would keep flowing, citing a high appetite for savings; domestic currency controls; immature domestic banking systems; and "the propensity of households in the United States to undersave and overspend."
"In my view, we can expect these "upstream" capital flows to continue for some time," he said. |
