Fed's McTeer: U.S. Needs Faster Growth
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Wednesday June 4, 12:12 pm ET
By Tim Ahmann
WASHINGTON (Reuters) - Dallas Federal Reserve President Robert McTeer said on Wednesday stimulative economic policies were needed to get the U.S. economy growing much faster, even though deflation was not an imminent threat.
"Even though I don't think deflation is right up on us, I do believe that we need a very stimulative policy, which we have in both monetary and fiscal policy, to boost growth," McTeer said on a live Web cast.
"I personally don't think we're on the verge of deflation and that disinflation has gone on too much," he said. "On the other hand, our economy has been weak for some time and the recovery has not been adequate to stimulate jobs growth."
McTeer, who does not have a vote this year on the central bank's policy panel, said while others were more concerned about deflation risks, it did not matter regarding policy.
"Our differences on how close deflation might be don't really result in differences in the prescription," he said. "I do think the economy needs to be growing much faster."
While McTeer downplayed concerns over the threat of deflation, he had recently said the odds of a persistent drop in the overall level of consumer prices in the United States were as high as one-in-four.
McTeer acknowledged that the dollar's strength in recent years had helped bring inflation down.
"To the extent we now have inflation down somewhere close to or in the range of price stability ... it has obviously brought us closer to the problem of deflation," he said.
But he also said the dollar's recent weakening should help bring the U.S. current account into better balance.
"Since we've gone into our little soft patch in the economy (the) flow of dollars from Europe to the United States has diminished and it has caused some adjustment in exchange rates that, given time, I believe will probably begin this process of equilibrium," he said.
McTeer said one option that has been discussed for spurring the economy if the Fed runs out of room to lower overnight interest rates -- buying longer-term bonds -- might prove no more effective than the Fed's current day-to-day operations.
"It's not entirely clear to me that if you buy longer-term bonds directly that the impact on long-term interest rates would be that different from what they are now," McTeer said.
Arbitrage opportunities tend to smooth out sharp changes that would alter the structure of short and long-term interest-rate relationships, he said.
On a separate topic, he said China may be forced to reconsider its decision to link its currency's value with that of the dollar as its importance grows in global trade.
"Most major trading blocs probably ought to have flexible exchange rates and we ought to only have fixed exchange rates among countries that are willing to accept the tight economic integration that is necessary to maintain equilibrium without an exchange-rate mechanism," McTeer said.
"China right now is a huge country with a huge potential as an economy. As it grows in importance on the world scene as a trading nation, it may have to reevaluate its exchange-rate system," he added. |
