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Saturday March 3, 5:40 AM
No need to fear a recession: policy-makers
By Alister Bull
WASHINGTON (Reuters) - Policy-makers assured nervous investors on Friday that the United States was not heading into recession and recent stock market losses did not warrant central bank intervention.
"We do not see a recession coming," St. Louis Federal Reserve President William Poole told a meeting in Santiago, Chile.
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Former Fed Chairman Alan Greenspan warned this week that a U.S. recession was possible, although not likely, in remarks that may have contributed to a worldwide downturn in stock markets since Tuesday.
Poole, an influential economist and voting member of the U.S. central bank's interest rate-setting committee this year, said the drop in equity prices was not grounds at the moment for the Fed to get involved.
"At this point it seems to me there is no pressing need for any immediate action," Poole told reporters.
"At the present time, our stock market valuation does not seem to be elevated, certainly not as it was at the end of 2000. We don't see the accumulating evidence that would justify ongoing market declines," he said.
Treasury Secretary Henry Paulson made a similar point, telling National Public Radio in an interview that market swings did not indicate economic weakness.
"The economy is strong ... Markets at any one time don't necessarily reflect the economic fundamentals," he said.
Nonetheless, Wall Street stocks ended lower across the board, with the Dow Jones Industrial Average shedding 120 points or nearly 1 percent to 12,114. The broader S&P 500 index ended down 16 points or just over 1 percent at 1,387 for a loss of 4.4 percent over the week, its worst weekly performance since January 2003.
IMF CONFIDENCE
International Monetary Fund Managing Director Rodrigo Rato also weighed in to the debate for the second consecutive day. He argued that global growth was strong, but investors had also learned a healthy lesson that markets fall as well as rise.
"The world economy is on a strong footing ... You see Asian and European economies (growing) at a strong pace and the U.S. slowdown seems to be a mild one," he told reporters on the sidelines of a meeting of Spanish savings banks in Mallorca.
"It's good advice for all investors to take into account that downside risks can materialize," he added, in a reference to persistent IMF admonishments that financial markets should not grow too complacent.
Many factors have been blamed for the turmoil in equity markets, including a weak January reading on U.S. durable goods orders that raised alarm over the country's economic recovery, alongside worry over its fragile subprime mortgage market.
The slide had begun with a 9 percent drop in the Shanghai bourse on Tuesday, prompted by fears authorities could crack down on speculation, and spread quickly in Asia.
Japan's top financial diplomat Hiroshi Watanabe said on Friday that stock market troubles were just a temporary blip.
"In the last two or three days we've had some decline in stock markets, but some markets have already begun a rebound and are calmer," he said. "I don't think it's a very big move in the market. I think it's very transitional," he told Reuters on the sidelines of an investor roadshow in Frankfurt.
Watanabe said there had been no sign of a stampede out of yen carry trades, where investors borrow in low-yielding yen to invest at higher rates elsewhere, which Rato had identified as an additional risk in remarks in Washington on Tuesday.
European governments complain the yen carry trade creates artificial demand for the euro zone's common currency, the euro, and is making their exports more expensive.
They campaigned against the practice at a meeting of Group of Seven finance ministers in Essen last month and warned that people heavily involved in these transactions could get hurt.
The Fed's Poole said he would expect the trade to unwind as interest rates converged internationally, but there had been "nothing I would regard as being disruptive at this stage."
(Additional reporting by Gideon Long in Santiago, David Milliken in Frankfurt and Ian Jones in London)
No need to fear a recession: policy-makers
By Alister Bull
WASHINGTON (Reuters) - Policy-makers assured nervous investors on Friday that the United States was not heading into recession and recent stock market losses did not warrant central bank intervention.
"We do not see a recession coming," St. Louis Federal Reserve President William Poole told a meeting in Santiago, Chile.
ADVERTISEMENT
Former Fed Chairman Alan Greenspan warned this week that a U.S. recession was possible, although not likely, in remarks that may have contributed to a worldwide downturn in stock markets since Tuesday.
Poole, an influential economist and voting member of the U.S. central bank's interest rate-setting committee this year, said the drop in equity prices was not grounds at the moment for the Fed to get involved.
"At this point it seems to me there is no pressing need for any immediate action," Poole told reporters.
"At the present time, our stock market valuation does not seem to be elevated, certainly not as it was at the end of 2000. We don't see the accumulating evidence that would justify ongoing market declines," he said.
Treasury Secretary Henry Paulson made a similar point, telling National Public Radio in an interview that market swings did not indicate economic weakness.
"The economy is strong ... Markets at any one time don't necessarily reflect the economic fundamentals," he said.
Nonetheless, Wall Street stocks ended lower across the board, with the Dow Jones Industrial Average shedding 120 points or nearly 1 percent to 12,114. The broader S&P 500 index ended down 16 points or just over 1 percent at 1,387 for a loss of 4.4 percent over the week, its worst weekly performance since January 2003.
IMF CONFIDENCE
International Monetary Fund Managing Director Rodrigo Rato also weighed in to the debate for the second consecutive day. He argued that global growth was strong, but investors had also learned a healthy lesson that markets fall as well as rise.
"The world economy is on a strong footing ... You see Asian and European economies (growing) at a strong pace and the U.S. slowdown seems to be a mild one," he told reporters on the sidelines of a meeting of Spanish savings banks in Mallorca.
"It's good advice for all investors to take into account that downside risks can materialize," he added, in a reference to persistent IMF admonishments that financial markets should not grow too complacent.
Many factors have been blamed for the turmoil in equity markets, including a weak January reading on U.S. durable goods orders that raised alarm over the country's economic recovery, alongside worry over its fragile subprime mortgage market.
The slide had begun with a 9 percent drop in the Shanghai bourse on Tuesday, prompted by fears authorities could crack down on speculation, and spread quickly in Asia.
Japan's top financial diplomat Hiroshi Watanabe said on Friday that stock market troubles were just a temporary blip.
"In the last two or three days we've had some decline in stock markets, but some markets have already begun a rebound and are calmer," he said. "I don't think it's a very big move in the market. I think it's very transitional," he told Reuters on the sidelines of an investor roadshow in Frankfurt.
Watanabe said there had been no sign of a stampede out of yen carry trades, where investors borrow in low-yielding yen to invest at higher rates elsewhere, which Rato had identified as an additional risk in remarks in Washington on Tuesday.
European governments complain the yen carry trade creates artificial demand for the euro zone's common currency, the euro, and is making their exports more expensive.
They campaigned against the practice at a meeting of Group of Seven finance ministers in Essen last month and warned that people heavily involved in these transactions could get hurt.
The Fed's Poole said he would expect the trade to unwind as interest rates converged internationally, but there had been "nothing I would regard as being disruptive at this stage."
(Additional reporting by Gideon Long in Santiago, David Milliken in Frankfurt and Ian Jones in London)
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