Jobs data show economy not worsening: Fed's Poole

By Alister Bull

ST. LOUIS (Reuters) - Federal Reserve Bank of St. Louis President William Poole said on Tuesday the September jobs report showed that the outlook for the U.S. economy was not darkening as some had feared, but conditions remain fragile.

"Financial markets appear to be stabilizing, but they have not returned to normal and are still fragile," Poole, a voting member of the Fed's interest-rate setting committee this year, told the Industrial Asset Management Council.

"Most forecasters have reduced their expectations for GDP (gross domestic product) growth and believe that downside risks have risen. However, the employment report for September, the latest available at this time, does not suggest that the downside risk is occurring," he said.

Poole was referring to the stronger than expected monthly employment report that showed 110,000 jobs were created in September, with August and July's results also revised up.

"The substantial upward revisions to data released in the August report remind us that it is a mistake to place too much weight on any one report," he said.

The Fed cut its key interest rate by a half percentage point to 4.75 percent on September 18. Following the jobs report, investors are divided on whether it will shave another quarter point off rates at the next scheduled meeting, on October 30-31.

Poole said his best guess was for economic growth.

"I certainly believe that we are going to see continuing moderate economic growth. But risks of a downturn have increased ... and should we get into a situation with extensive job loss, that is going to effect the housing market," he told reporters after the speech.

Poole had expected a very weak September employment report and the actual outcome showed that housing market woes were not spilling into the wider economy, as some might have feared.

"Certainly the September report does not suggest that that process has started," Poole said.

"I was ready for a unpleasant downward number in the September report because that was long enough into the period of financial turmoil...but it didn't happen. Some of these people may have quickly found themselves new jobs...but clearly, the overall employment report was pretty strong."

WEAK DOLLAR NOT INFLATIONARY

The dollar has slipped to fresh record lows against the euro since the rate cut, but Poole said that this should not lead to heightened inflation pressures in the United States.

"I do not see any implication for inflation, at least with the magnitude of the depreciation that we've seen so far," Poole told reporters.

"I did not see any evidence of a raft of dollar price increases for foreign goods, with the exception obviously of commodities," he said, noting commodity prices were set in world markets. "But for manufactured goods, I think the pass-through is very, very small," he said.