Fed's Fisher: Slowdown may be long, but not deep
MIDLAND, Texas (Reuters) - The U.S. economy has clearly weakened but the slowdown, while possibly prolonged, may not be as deep as pessimists fear, Dallas Federal Reserve President Richard Fisher said on Tuesday.
Fisher, who has dissented against more aggressive interest rate cuts advocated by his Fed colleagues, said inflation remained a big concern.
But he added that the future direction of rates would depend on developments on the ground, although he remained optimistic about America's economic resilience.
"I'm not sure how deep the economic slowdown will be," he said at a community event in Midland, Texas, even as he admitted the softness could linger for some time.
He said growth was currently in a corrective phase that was the result of a "shadow" banking system gone awry, urging Congress to strike the right balance between increased regulation and unencumbered market activity.
Fisher lauded central bank efforts to lubricate financial markets following the worst credit crunch in at least a decade, including the creation of lending facilities aimed at reviving interbank borrowing.
His concerns about inflation stemmed in part from the relentless rise in oil and commodity prices, Fisher said, adding that it was unclear whether a slowing United States would be enough to alleviate cost pressures.
"There still is growth in the world economy, even if we slow down," Fisher said. "It's difficult for me to see a supply response that will feed into that demand to relieve all the price pressures we see on oil." Oil prices continue to set new records, and were currently trading above $125 a barrel.
Asked about the battered dollar, Fisher said he does not lose any sleep over day-to-day fluctuations in the currency. But the possibility of a "negative feedback loop" generated by unfavorable interest rate differentials does present reason for worry, Fisher said.
Analysts say the dollar's weakness is explained in part by the Federal Reserve's aggressive interest rate cuts over the last nine months, in contrast with the European Central Bank's steady monetary policy.
The Fed has slashed its benchmark fed funds rate sharply since September, from 5.25 percent when the crisis began to its current 2 percent.
(Reporting by Pedro Nicolaci da Costa, Editing by Chizu Nomiyama)
