Fed official: Consumers OK
New York bank chief tells Poles that accounting scandals, terror fears don't daunt Americans.
July 2, 2002: 7:37 AM EDT
WARSAW, Poland (Reuters) - The wave of accounting scandals hitting corporate America and fears of new Sept. 11-style terrorist attacks have not hit the willingness of U.S. consumers to spend, a U.S. central banker said Tuesday.
The comments by New York Federal Reserve President William McDonough marked the first statement by a top U.S. monetary policy maker on the $3.8 billion accounting scandal at WorldCom Inc., the No. 2 U.S. long-distance phone company.
"Consumer spending stays quite high, especially in autos and housing, and there are no data that would suggest that these accounting scandals and terrorist threats affect consumer spending. But it is clearly a risk," McDonough told reporters on a visit to Warsaw.
"The risk to economic forecasts is: Could consumers become more cautious? Probably not. And could business fixed investment stay weak? Probably not. But it is a slightly greater risk," he added.
The unfolding WorldCom scandal, which came after the company admitted inflating profits by misreporting spending as capital investment, has smashed confidence in U.S. stock markets.
The technology-dominated Nasdaq slumped by 4 percent Monday to a five-year low. Shares in WorldCom are now virtually worthless and analysts say bankruptcy may be imminent after lenders put it in default on $4.25 billion in credit lines.
But McDonough's reassuring comments suggested that the damage to the net wealth of American consumers caused by the stock market selloff would not have a significant, wider impact on growth in the world's largest economy.
His comments came after data last week showed U.S. consumer sentiment suffered its biggest one-month drop in June since the Sept. 11 attacks.
Warnings by Washington of fresh attacks by the Islamic militants of the Al-Qaeda network behind the suicide plane attacks on the World Trade Center in New York and the Pentagon have rarely been out of the headlines.
But other figures show that retail activity remains strong in car showrooms and shopping malls across the United States, leading analysts to forecast continued recovery.
McDonough said the so-call "blue-chip" forecast put together by leading private sector economists appeared reasonable.
The group sees the U.S. economy growing by four percent this year, and by 3-3.5 percent in the second half, with growth slowing to 3.4 percent in 2003.
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btw, Kb I agree with you about advisors...of course, I grew up in a family of lawyers...=) |
