Fed's McTeer Happy with Interest Rates
Sun Nov 24, 8:12 PM ET
URL:http://story.news.yahoo.com/news?tmpl=story2&cid=568&ncid=749&e=4&u=/nm/20021125/bs_nm/economy_fed_mcteer_dc
NEW ORLEANS (Reuters) - U.S. interest rates are at the right level, given the tentative pace of the economic recovery so far, Dallas Federal Reserve (news - web sites) President Robert McTeer said on Sunday.
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"I do think our recovery is sort of anemic. It needs to be goosed a little bit. It calls for easy monetary policy, but we have that, so I'm very happy with monetary policy as it is now," McTeer told reporters after giving a speech to the Southern Economic Association here.
The Fed earlier this month lowered interest rates by half a percentage point to new four-decade lows, but dropped a warning of further weakness in an indication that rates were likely to stay where they are for the time being.
It was the first interest rate reduction this year.
McTeer, along with Fed Governor Edward Gramlich, pushed for lower rates at the previous meeting in September, when the majority of policymakers were content to stand pat.
The Dallas Fed president echoed other Fed officials on Sunday and said he is not worried about deflation right now.
"But I am an ally of those who do worry about deflation, since the monetary policy needed to combat deflation is essentially the same as the policy needed to stimulate faster growth, and I do believe we need to do that," McTeer said in the speech. "Maybe we can kill two birds with one stone."
McTeer also repeated his belief that the recovery so far had been a "jobless" one.
He later told reporters he saw the decline in payrolls in recent months as a better barometer of the state of the labor market than the unemployment rate, which is the product of a separate household survey and which has remained in a narrow range this year.
The Labor Department (news - web sites) reported in November that its payroll survey showed a drop of 5,000 jobs in October while the unemployment rate inched up to 5.7 percent from 5.6 percent.
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In prior months, the discrepancy between the two has been more marked, with the unemployment rate falling even as payrolls slipped.
"According to the household survey, we've had enough job growth to keep the unemployment rate pretty flat over the last year. So it's not all that anemic by that measure," McTeer said. "But by the establishment survey, we've had actual job decline over the last year of so-called recovery. So you have to pay your money and take your choice."
McTeer said economists at the Dallas Fed tend to put more stock in the payroll survey than the unemployment rate and he believed this was consistent with the mood of the economy.
"This does not feel like a real vigorous economy...I tend to think of that one right now as a better reflection of the state of the economy," he added.
McTeer said a drop in initial jobless claims last week was encouraging but not yet enough to make him comfortable.
Turning to the timing of a recovery in business spending, seen as the most likely linchpin of a more vital economic recovery, McTeer said it was likely there would be a turnaround next year but said he was not sure when.
"It's got to come up, hasn't it? Presumably it will. You can't go on forever with consumers spending money and businesses holding back," McTeer said. "I have no way of guessing when. It's started but it's not strong yet."
McTeer was more upbeat about the U.S. consumer, whose spending helped blunt the effects of last year's recession and kept the recovery moving forward even with businesses reluctant to spend on investment or hiring.
"Never underestimate the power of the consumer to spend money," he said. "It's easy to say...consumer debt is high, the consumer has been carrying this economy for years and the conclusion is that they can't keep doing it. But people have been saying that for three to four years and they are still doing it, so I hope they do it a little while longer."
He said that while he sees the low rate of saving among Americans as cause for concern, the important thing in the short run is that consumers continue to spend.
"You almost feel a moral dilemma about that because most of us do need to be saving more but we're all in deep trouble if we start saving more because for the economy right now, we don't need more saving, we need more consumer spending," McTeer said. "We need over time to have more saving and investment. Right at the moment though, we need consumption and investment.
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