Shanghai Daily news
The US will probably experience slower economic growth rather than a deeper
downturn, predicts Federal Reserve Bank of Dallas President Richard Fisher.
The most likely scenario is the US will avoid a "prolonged period of negative
economic growth," Fisher said in Fort Worth, Texas, without mentioning the term
"recession," Bloomberg News reported. He also said he's hearing increasing
expressions of concern from executives about inflation, which got his
"attention."
Fisher spoke after data last week showed the U.S. was moving closer to a
recession, while inflation was accelerating at the same time. He said on Friday
that the slowdown in growth will probably last for a "couple" of quarters and
warned it may be difficult to quickly raise interest rates.
Fed officials anticipate growth of 1.3 percent to two percent this year, down
from 2.5 percent in 2007. Two members of the panel charged with dating U.S.
economic cycles said yesterday that it's too early to decide whether the U.S. is
in recession.
"We have to be wary of the fact that we are navigating through an extremely
narrow passageway here: with on the one side of us inflationary shoals and on
the other the risk of weaker economic growth," said Fisher, who alone voted
against the Federal Open Market Committee's January 30 decision to lower the
benchmark rate by half a point.
The Fed is doing its "very best" to find the right balance between the
concerns about both growth and inflation, Fisher said. The central bank must be
careful not to stir inflation "embers," he told the Petroleum Club of Fort
Worth. Business executives have relayed concerns about "building cost
pressures," Fisher said.
Policy makers last month lowered their benchmark rate by 1.25 percentage
points to three percent, with an emergency reduction of three-quarters of a
point on January 22. The moves were the fastest easing of monetary policy in two
decades.
The Fed's rate cuts may be more difficult to reverse in practice than in
theory, said Fisher, 58. The former hedge fund manager, US trade official and
Senate candidate became head of the Dallas Fed in April 2005.
Minutes of the Fed's January 9 and January 21 conference calls and January
29-30 meeting showed that some officials may favor a "rapid" reversal of rate
cuts when the economy stabilizes.
"It just seems to me to put yourself in that position where one might have to
shift gears suddenly is a bit precarious," Fisher said. "The ability to raise
rates quickly if the mood has shifted" may be "a more difficult thing to do in
practice than in theory," he said.