WASHINGTON (AFX) -- Many factors are holding down growth in the U.S. economy, creating "opportunities" for the Federal Reserve to pause from its path of steady rate hikes, said Janet Yellen, the president of the San Francisco Fed. Yellen said there are three factors dampening economic growth at the moment: higher oil prices, cautious business spending and a large and growing trade deficit. Two other factors -- the low savings rate and waning stimulus from tax cuts -- may hit the economy soon, she said in a speech to Arizona State University's annual forecast luncheon in Phoenix
If these factors "continue to weigh on the economy or worsen, there will be more opportunities for the FOMC to pause," Yellen said. On the other hand, should there be signs that these drags are lessening, it may be appropriate for the Fed to hike rates more rapidly, she noted
"The challenge, then, for monetary policymakers is to be on high watch as developments unfold, to evaluate them with an open mind, and to adjust the course of policy to achieve our dual mandate - promoting price stability and maximum sustainable employment," Yellen said
The FOMC has engineered four straight quarter percentage point rate hikes since June, doubling the federal funds rate to 2.0 percent from a four-decade low of 1 percent earlier this year
Many Fed watchers had expected Fed policymakers to pause at their meeting on December 14, but strong economic data since the last FOMC meeting have changed the forecast to another quarter-point hike
In her speech, Yellen said that the economy was growing "modestly above trend," around 3.25 to 3.5 percent real GDP growth
Although these results "look pretty good," Yellen noted this wasn't such a high growth rate considering the economy was getting a push from accommodative monetary policy, tax cuts and higher defense spending
Yellen said there is already evidence that higher oil prices are damping consumer spending. She said that the rise in oil prices may not be transitory
"If that were to happen, we could expect consumers and firms to seal up their wallets somewhat tighter," Yellen said
A second drag relates to business investment. Yellen said that spending has been less strong than one would expect, given low interest rates, solid demand and high corporate profits
But for the first time in decades, business cash flow has actually exceeded total capital investment, Yellen said
"This may suggest a continuation of the caution that has marked business decision making in the wake of the terrorist threats and issues surrounding corporate governance," Yellen said
Yellen said there was also no sign that the "heady days of massive IT investment" will return anytime soon
There is also no sign that the massive trade deficit will narrow, given the sluggish growth of most of the major U.S. trading partners
Yellen was more optimistic about the impact of high energy prices on inflation
Although there has been an uptick in core inflation, "it's not a big concern at this point," Yellen said
She said slack remains in the U.S. labor market, putting downward pressure on inflation
San Francisco Fed president makes case for rate pause
notíCIas_pt
24
01-12-2004 14:18
Disclaimer:
O Clubeinvest.com informa que nenhuma da informação
aqui facultada deverá ser entendida como conselho ou recomendação
de qualquer tipo de transacção ou investimento.
