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Fed's Poole Says Interest-Rate Stance `About Right' (Update1)
By Scott Lanman and Craig Torres
Nov. 14 (Bloomberg) -- Federal Reserve Bank of St. Louis President William Poole said the central bank's interest-rate stance is ``about right,'' though higher borrowing costs will be needed should the Fed fail to bring inflation down.
``We need a policy that is disciplined enough to get the job done, but not more so,'' Poole told reporters after a speech in Wilmington, Delaware. ``If all the information taken together suggests that we are not making progress, then I will be among those who will push for a tighter policy.''
Poole said inflation expectations are ``well controlled'' and investors don't expect prices to get out of hand, even as the Fed's preferred price measure has run above officials' acceptable range since 2004. Poole voted with the majority on Oct. 25 to leave the benchmark lending rate at 5.25 percent for the third straight meeting. He will vote on the FOMC throughout next year.
``The market does believe we're serious'' about containing inflation,'' Poole said.
He reiterated that he sees the outlook for the fed funds rate as ``roughly symmetrical,'' meaning the chances of an interest-rate cut and an increase are about equal. He didn't give a time frame for the next move up or down. Stocks rallied after the remarks, pushing the Standard & Poor's 500 Index to a six- year high.
``I can imagine data coming in that would make me want to tighten policy, and I could imagine data coming in that would make me want to ease policy,'' Poole said. ``I don't think we are way behind.''
Poole, 69, has been serving as an alternate voter on the rate-setting Federal Open Market Committee since Atlanta Fed President Jack Guynn retired Oct. 1.
Holding the Line
Investors expect the Fed to leave borrowing costs unchanged next month for a fourth meeting after raising the target rate for overnight loans between banks 17 times in two years.
Traders today raised bets the Fed would cut its benchmark interest rate in March or May after the government said prices paid to U.S. producers matched the biggest monthly drop on record and retail sales fell.
Earlier, Poole said in response to an audience question that while the housing market's slump may deepen, central bankers shouldn't adjust interest rates unless the slowdown endangers the broader economy.
``We just don't know how much further the housing downturn has to go,'' Poole said. ``As long as the housing problem remains confined to housing, there is really nothing the Federal Reserve can or should do.''
`Special Attention'
Fed policy makers are now giving the housing market what Poole said is ``special attention.'' Sales of new single-family home sales dropped 23 percent in the third quarter, and Poole said he's concerned about purchase cancellations by prospective home buyers. The U.S. economy, dragged down by housing, grew at a 1.6 percent annual pace last quarter.
The housing market is seeing ``significant price softness'' and may be weaker than it appears, and the level of concessions by home builders to buyers is also a concern, Poole told the audience.
In his speech, Poole said slower growth in the U.S. labor force, a result of retiring baby-boomers, will make it tougher for central bankers to set interest rates properly next year.
The pace of monthly job growth needed to keep the unemployment rate stable may range from 70,000 to about 120,000 next year, Poole said, citing research by Fed economists. That is down from about 170,000 new jobs a month in 2004 and 2005 and 250,000 from 1996 to 1999, he said. The U.S. unemployment rate fell to a five-year low of 4.4 percent in October.
Changing View
``With the baby-boom generation starting to retire, we'll have to change our view of normal job creation,'' Poole told the CFA Society of Philadelphia at a lunch in Wilmington, where he grew up. ``Uncertainty over trend labor force growth will complicate the Fed's job next year.''
If job growth next year is ``modestly below'' the 2006 average pace of 150,000 per month, Fed policy makers will have to judge whether the growth is ``outrunning'' the pace of available labor, or whether the potential labor-growth rate is at the high end of estimates, Poole said.
Recent revisions to job growth by the Labor Department were a ``surprise to all of us,'' Poole said after the speech. The government in October said the economy gained 810,000 more jobs than previously estimated in the year ended in March.
``It certainly looks like the labor market is pretty fully employed,'' Poole told reporters.
He said employers are having difficulty hiring in part because prospective workers are unable to pass tests for illicit substances in their bodies.
``That's a big issue,'' Poole said. ``You talk to employers, and they will te ll you that that is one of their biggest issues -- to find people who qualify in terms of the job plus being able to pass a drug test.''
Poole, a former economics professor at Brown University in Providence, Rhode Island, joined the St. Louis Fed as its president in 1998.
Last Updated: November 14, 2006 16:23 EST |
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發表於 2006-11-16 16:30:32
