Fed´s Poole not fazed by soft-patch
Sunday, August 29, 2004 4:10:04 PM
Fed's Poole not fazed by soft-patch JACKSON HOLE, Wyo.
The economy is on a solid growth track and, by the time the leaves start falling from the trees, the only thing remaining from the current "soft patch" will be a bad memory, said William Poole, the president of the Federal Reserve Bank of St. Louis
"A pause is not abnormal. It is a feature of a recovery period," Poole said in an interview with CBS MarketWatch
"My personal conviction is fundamentals are very strong," Poole said Saturday on the sidelines of an economic conference sponsored by the Federal Reserve Bank of Kansas City
Poole said he expected "a good rate of growth will resume," but said he would not attempt to predict the exact point at which the soft patch would end. "I can't tell you if the soft patch will last a few weeks or a few months," he said
But economic history shows that such temporary slowdowns do not last, he said. The U.S. economy has experienced two similar pauses in the midst of the recoveries of 1962 and 1976
He said the Fed mistakenly added stimulus in reaction to the 1976 slowdown, which only fueled higher inflation
In addition, the current pause isn't extreme" he said, noting that real GDP growth in the second quarter was 2.8 percent, faster than economists in the 1980s thought the economy could grow over time without creating inflation
Poole said business leaders in his district remain confident about the outlook
"I didn't see any sense things are taking a big turn for the worse," he said
At the moment, the worst that can be said about the economy is that it is sending off mixed signals, he said
Even the Labor Department's unemployment report is now divided between a weak payroll number and a stronger household survey, he said
The payroll data deserves greater weight, he said, but the household survey doesn't get "zero weight," he said
In fact, the main risk facing the economy, Poole said, is another terrorist attack
When the economy is sending off divergent messages, "it is not time to draw conclusions," Poole said
Asked if a weak August unemployment report -- which would be the third weak report in a row -- might cause the Fed to refrain from raising rates at its next meeting on Sept. 21, Poole said that a weak report would bear on the decision, especially ""if it was confirmed by other information." A series of weak indicators might cause the FOMC to raise interest rates at a slower pace, he said
"If all those things, put together, said it was time to go a little slower, I think we would go a little slower," Poole said, adding that he was "not making a prediction of where we would come out even if we had this happen." Poole said he was not concerned about price pressures even in the wake of the spike in oil prices
"Inflation at the moment is pretty benign," he said
With inflation expectations remaining low, "inflation will change only slowly," he said
He said businesses are still finding it difficult to pass on higher energy costs to customers. It's also unlikely that wages will begin to rise in response to higher oil prices, he said
"I think that businesses are very, very cautious about allowing higher wage costs to get built in," he said |
