Feb 27, 2001 (FWN Select via COMTEX) -- --Ferguson: US spending has "held up
well" despite sentiment drop
--Ferguson cites recent "adverse movement" in US inflation rates
--Ferguson says spending vigor despite sentiment drop "puzzling"
--Ferguson says slower-than-desired growth still "predominant risk"
--Ferguson: Consumer sentiment points to risk of excessive slowing
--Ferguson says inflation should be contained if energy prices drop --Ferguson
says slower economy should restrain price pressures --Ferguson says it's unclear
how long inventory adjustment will take
By Edward Kean, BridgeNews
Washington--Feb. 27--Slower-than-desired growth remains the predominant risk in
the U.S. economy, but household spending so far has "held up well" despite the
weakening in consumer sentiment, and there has been some recent "adverse
movement" in inflation rates, Federal Reserve Vice Chairman Roger Ferguson said
Tuesday. The Fed will weigh its long-term mission of pursuing stable prices in
its short-term response to the current economic slowdown, he said.
* * *
"In the current environment, monetary policy faces the short-term challenge of
discerning the uncertain dimensions of the current slowdown in economic growth
and responding appropriately," he said in remarks for delivery to the Securities
Industry Association in New York City. "Any such response, however, will be made
in the context of our continued commitment to an unchanged long-term
mission--namely, the promotion of maximum sustainable employment through pursuit
of price stability over time."
Ferguson acknowledged that recent economic data confirm a "significant
deceleration" in activity, with the economy undergoing an adjustment to bring
inventories and capital goods in some sectors into better alignment. It is
unclear how long this adjustment will take to complete, he said.
Ferguson reaffirmed comments made by other Fed officials that growth "notably
slower" than the economy's long-run potential remains the "predominant risk."
"One factor pointing to a risk of unacceptably slow growth is the uncertainty
about consumer sentiment," he said.
But Ferguson also noted, "A somewhat puzzling feature of the recent period has
been that, despite the sharp weakening in sentiment, household spending appears
thus far to have held up well," he said. How these conflicting signals will be
resolved is not apparent and will need close scrutiny, he said.
Financial markets have been rife with speculation that the Fed may make the
unusual move of cutting interest rates this week before its next regularly
scheduled monetary policy meeting on March 20 in view of weakening consumer
confidence and the stock market slide.
But Ferguson's mention of adverse movements in inflation and his comment that
spending has held up well despite the weakening in consumer sentiment may stir
doubt as to whether the Fed will indeed cut rates this week.
While the overall consumer price index has accelerated appreciably, it largely
reflects the rise in energy costs, Ferguson said. He noted the "core" CPI,
excluding food and energy prices, also has accelerated, but "much more
modestly." Energy prices probably contributed to the price hikes for non-energy
items, he said.
But Ferguson expressed optimism that inflation will be contained if energy
prices fall as financial markets expect.
"If these expectations prove accurate, this should help contain inflation" +
directly and indirectly, he said.
"Furthermore, any easing of resource utilization associated with relatively
damped economic growth should also restrain price pressures going forward," he
said.
Ferguson's comments on the economy were contained in the first few pages of a
lengthy speech largely devoted to recounting the findings of a study conducted
by the Group of 10 industrial nations on consolidation in the financial services
industry. Ferguson, whose speech was released here, directed the study.
(C) Copyright 2001 FWN
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The bridge.com ID for this story is BPRXZWQ
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