Fed's Santomero Says Rate Cuts Will Preserve U.S. Expansion ...Fed's Santomero Says
By Carlos Torres and John Cranford
Dewey Beach, Delaware, April 21 (Bloomberg) -- Federal Reserve policy makers are prepared to reduce interest
rates again if the U.S. economy shows signs of continued weakness, said Anthony Santomero, president of the
Federal Reserve Bank of Philadelphia.
Four rate reductions by the Fed since the first of the year will probably cause the economy to rebound in the
second half, he told the Delaware Credit Union League in Dewey Beach, Delaware.
``While considerable uncertainty remains and there are risks along the way, I do not expect this slowdown to halt
the economic expansion,'' Santomero said.
Because inflation isn't accelerating, ``the Fed has the latitude to again respond quickly and effectively. Just as I
believe as we have done in the past four months and as we are prepared to do again,'' he said.
Fed policy makers surprised investors with a half-percentage- point reduction in the benchmark overnight bank
lending rate on Wednesday, pushing down the rate to a six-year low of 4.5 percent.
Santomero, a non-voting member of the policy-setting Open Market Committee, described the Fed's recent
actions as a needed ``aggressive'' reaction to the slowdown. ``Monetary policy must be flexible and responsive to
rapidly unfolding economic developments.''
The economy grew at a 1 percent annual rate in the final three months of last year and ``expectations for the first
quarter of this year are for a similarly low but positive growth figure,'' he said.
Rippling Rate Cuts
The effects of the Fed's rate cuts ``will ripple out into the economy in the coming months.'' That is one reason
Santomero said he expects growth to pick up in the latter half of the year ``and reach a more acceptable level next
year.''
Santomero said he sees ``positive signs'' of a rebound. ``Businesses have made strides in reducing excess
inventories,'' he said. ``Consumption and housing expenditures have held up reasonably well, even though activity in
these areas has recently slowed.''
In response to questions from reporters after his speech, Santomero said he sees ``more signals indicating a
stabilization in the economy than we have seen before.''
Still, he told the credit union executives, ``there are reasons for concern,'' chiefly declining business investment and
earnings.
``The persistent erosion in current and expected profitability, in combination with rising uncertainty about the
business outlook, seems poised to dampen future capital spending,'' he said, quoting the Fed's statement
accompanying the Wednesday rate cut.
That, plus reduced spending as consumers' stock holdings dwindle, ``threatens to keep the pace of economic
activity unacceptably weak,'' the Fed said Wednesday and Santomero said today. |
