Fed Officials Cautious About Economic View
By Barbara Hagenbaugh
WASHINGTON (Reuters) - Federal Reserve officials stuck with their cautious tone on Monday, declaring that although there
are tentative signs the worst might be over for the U.S. economy, it was too early to declare victory.
``We at the Chicago Fed believe we are in a period of transition,'' Moskow said in a speech to the Mid-America Club in Chicago. ``The economy will recover, but, as I noted, the signs are still preliminary and the timing uncertain.''
In a separate speech, New York Fed President William McDonough said it was unclear how strong the U.S. economic recovery will be.
``There are differences in opinion as to whether the recovery will be sort of strong, fairly strong, or very strong,'' McDonough said in a speech before the Institute of International Bankers in New York. ``I would love to know the answer to that question.''
The two Fed officials' comments came a little more than two weeks before the U.S. central bank is next scheduled to meet to discuss interest rate policy.
Expectations that the Fed will cut rates at the Jan. 29-30 meeting rose on Friday when Fed Chairman Alan Greenspan said that
although the U.S. economy showed signs of stabilizing, significant risks remained as it struggles to emerge from a 10-month-old
recession.
``There are sound reasons for concluding that the long-run picture remains bright, and even recent signals about the current
course of the economy have turned from unremittingly negative through the late fall of last year to a far more mixed set of signals
recently,'' Greenspan said.
``But I would emphasize that we continue to face significant risks in the near term,'' he added.
One of the risks Greenspan mentioned was that it was unclear if the U.S. consumer will continue to spend as the unemployment
rate climbs.
The U.S. jobless rate typically continues to rise for awhile even after an economic recovery takes hold. Economists and Fed
officials fear that consumers who have lost their jobs or are nervous that a pink slip may soon appear in their mailbox may keep
their wallets shut -- a significant problem since consumer spending accounts for two-thirds of all U.S. economic activity.
Moskow also expressed the same concern on Monday, but added: ``Of course, not all risks to the household sector forecast
are on the downside. Generous retail discounts and low interest rates could boost spending more than expected.''
In fact, Moskow said consumer spending had bounced back after declining in the wake of the Sept. 11 attacks. McDonough
said, ``the consumer has stayed right in there.''
The Fed cut interest rates 11 times in 2001 to their lowest level in 40 years to boost the economy, which sunk into a recession
in March. McDonough is a voting member on the Fed's policymaking committee but Moskow, following the usual rotation
among Fed presidents, is not.
Some economists have struck an optimistic note lately, with several estimating the economy may be growing this quarter after
contracting at the end of last year. But in a slew of speeches over the last week, Fed officials -- including Greenspan -- have
suggested they aren't so sure the U.S. recession is coming to a close.
