Fed official hints at cut in US interest rates
By Clay Harris in London and Neil Buckley in Brussels
A senior Federal Reserve Board official yesterday nudged market expectations towards a possible US interest rate cut, ahead of Senate testimony today by Alan Greenspan, the central bank's chairman.
William McDonough, president of the Federal Reserve Bank of New York and deputy chairman of the Federal Open Market Committee, which meets next week to consider any change in rates, said: "I believe the balance of risk has shifted from one about inflation to one of concern about adequate growth."
Mr McDonough cautioned that this view, based on anecdotal evidence in the US about investment plans, job reductions and consumer confidence, should not be taken as an indicator of what the FOMC would decide or even how he would vote.
His comments in London were also largely a restatement of comments made two weeks ago by Mr Greenspan, who is to testify to the Senate budget committee about global economic issues.
Mr McDonough said markets had over-reacted by concluding that a statement from the Group of Seven leading industrial countries last week pointed to co-ordinated interest rate cuts.
G7 members had recently changed rates - up by Canada and down by Japan - for their own reasons. His views were echoed by Wim Duisenberg, the European Central Bank president, who yesterday ruled out a co-ordinated cut in interest rates with the US.
He said the priority for Europe, with only 100 days to go before the launch of the single currency, was to continue the process of interest rate convergence.
Rates in much of the euro-zone, he added, were "significantly" lower than those in the US.
"We don't want that process to be interrupted by moves in interest rates co-ordinated with whomever, and especially not with those with significantly higher interest rates."
Interest rate cuts alone, he warned, were not enough to solve the economic crisis.
Mr McDonough said he hoped the single European interest rate would be as close as possible to the lower rates in the zone in Germany and France. |
