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Fed's Fisher says economy solid, wary on prices
Monday September 25, 1:04 pm ET
By Kieran Murray and Noel Randewich,
MONTERREY, Mexico (Reuters) - A top U.S. Federal Reserve official said on Monday the economy is doing well but inflation remains a concern, in remarks that challenge views the central bank will cut interest rates early next year.
"Inflation remains elevated and leaves us small choice but to remain vigilant," Federal Reserve Bank of Dallas President Richard Fisher told a pubic forum here, hosted jointly by his institution and the Banco de Mexico.
"It is my considered judgment that the recent tempering of U.S. economic growth to a more sustainable rate, combined with the lagged effects of our 17 prior quarter-(percentage-)point rate increases, should act to lower the inflation rate over time. However, if this proves not to be the case, appropriate action will have to be taken," he said.
Fisher is not a voting member of the Fed's policy-setting committee this year or next.
The Fed paused a two-year-long rate hike campaign in August and voted 10-1 to stay on hold when it last met on September 20. Opinions on how long it will stand pat are deeply divided.
A surprisingly weak reading from a survey of manufacturers in the U.S. Mid-Atlantic region by the Philadelphia Fed last week prompted financial markets to extend bets that the Fed would lower interest rates next year.
However, Fisher noted that the Dallas Fed's own survey of manufacturers told a much less alarming story.
"In our part of the country we are firing on all cylinders, including housing," he told reporters.
The Texas Manufacturing Outlook Survey for September, released on Monday, showed improved general business conditions and the highest capital spending levels since August 2004.
Fisher did acknowledge housing had suffered a "serious correction" at the national level, while autos were also weak.
"Those are the two weak points of the economy, but everything else is doing extremely well. We have a very strong economy but for those two sectors," he said.
Fisher also said third-quarter growth would be only a touch below the 3 percent annualized pace of the previous three months -- versus considerably lower forecasts in the private sector -- while highlighting factors supporting the economy.
"We are fortunate that the rest of the economy is healthy and robust ... Production is being reinforced by the settling down of commodity price pressures. Consumers are getting a shot in the arm from lower gasoline and natural gas prices.
"And, very importantly, the rest of the world is growing faster than the United States, further mitigating the downside risks of a slowing U.S. economy," he said.
Investors calculating the Fed will be forced to start cutting rates next year gamble the housing market will hit real problems, crimping consumer spending and spreading a serious chill throughout the U.S. economy. Fisher was not convinced.
"You have to be careful not to exaggerate how much it (housing) dampens the economy given that everything else other than the auto sector is doing well," he told reporters.
Fed's Fisher says economy solid, wary on prices
Monday September 25, 1:04 pm ET
By Kieran Murray and Noel Randewich,
MONTERREY, Mexico (Reuters) - A top U.S. Federal Reserve official said on Monday the economy is doing well but inflation remains a concern, in remarks that challenge views the central bank will cut interest rates early next year.
"Inflation remains elevated and leaves us small choice but to remain vigilant," Federal Reserve Bank of Dallas President Richard Fisher told a pubic forum here, hosted jointly by his institution and the Banco de Mexico.
"It is my considered judgment that the recent tempering of U.S. economic growth to a more sustainable rate, combined with the lagged effects of our 17 prior quarter-(percentage-)point rate increases, should act to lower the inflation rate over time. However, if this proves not to be the case, appropriate action will have to be taken," he said.
Fisher is not a voting member of the Fed's policy-setting committee this year or next.
The Fed paused a two-year-long rate hike campaign in August and voted 10-1 to stay on hold when it last met on September 20. Opinions on how long it will stand pat are deeply divided.
A surprisingly weak reading from a survey of manufacturers in the U.S. Mid-Atlantic region by the Philadelphia Fed last week prompted financial markets to extend bets that the Fed would lower interest rates next year.
However, Fisher noted that the Dallas Fed's own survey of manufacturers told a much less alarming story.
"In our part of the country we are firing on all cylinders, including housing," he told reporters.
The Texas Manufacturing Outlook Survey for September, released on Monday, showed improved general business conditions and the highest capital spending levels since August 2004.
Fisher did acknowledge housing had suffered a "serious correction" at the national level, while autos were also weak.
"Those are the two weak points of the economy, but everything else is doing extremely well. We have a very strong economy but for those two sectors," he said.
Fisher also said third-quarter growth would be only a touch below the 3 percent annualized pace of the previous three months -- versus considerably lower forecasts in the private sector -- while highlighting factors supporting the economy.
"We are fortunate that the rest of the economy is healthy and robust ... Production is being reinforced by the settling down of commodity price pressures. Consumers are getting a shot in the arm from lower gasoline and natural gas prices.
"And, very importantly, the rest of the world is growing faster than the United States, further mitigating the downside risks of a slowing U.S. economy," he said.
Investors calculating the Fed will be forced to start cutting rates next year gamble the housing market will hit real problems, crimping consumer spending and spreading a serious chill throughout the U.S. economy. Fisher was not convinced.
"You have to be careful not to exaggerate how much it (housing) dampens the economy given that everything else other than the auto sector is doing well," he told reporters.
