Fed's Fisher says very concerned by inflation
AMARILLO, Texas (Reuters) - Federal Reserve Bank of Dallas President Richard Fisher said on Wednesday the U.S. economy faces growth risks, but he does not expect a recession and remains worried by the outlook for inflation.
He said policy-makers will not be "bullied" by financial markets and said he was "uncomfortable" with some of the price measures that he sees.
"There are people at the (Federal Open Market Committee) table, myself included, that are very concerned about inflationary pressure. I don't think we're done in terms of getting it to where we want it to get," he told a community forum hosted by the Dallas Fed.
"At the same time, we have to be very mindful of the fact that in order for capitalism...to continue to function, we have to have a healthy working financial market. And so that is where we presently stand," said Fisher, who is not a voting member of the Fed's interest rate-setting committee this year.
He described U.S. financial markets as "brittle" and said Fed policy-makers "must be very careful to always do what is right for the economy" but must make decisions keeping the central bank's long-term goals of economic stability in mind.
"Obviously, you can't ignore the credit markets ... (but) the Fed will not be bullied by markets," Fisher said.
He expressed sympathy with the fact that consumers feel "squeezed" by rising prices and added: "If you look at the broader prices indices, the CPI (consumer price index), the PCE (personal consumption expenditure index), I'm uncomfortable personally with those numbers."
In response to questions later, he said the dollar's low value was primarily a reflection of lower U.S. interest rates and was not a sign that investors were losing confidence in the United States' economic prospects.
"I think it's largely derived not so much from a lack of confidence in the United States economy, we still are seeing significant capital inflows into the United States...but from the fact that the interest-rate differentials are so clear," Fisher said, adding that such differences don't last forever.
Intensified financial market instability in recent weeks amid mounting losses from the collapse of the subprime mortgage market have unnerved investors, who fear the U.S. economy is heading for a serious fall.
Fisher dismissed the worst of these worries, but acknowledged that the economy could slow "substantially".
"On the growth side there is a very fat 'left tail', where there is downside risk that is substantial. I don't see presently that there is a recession on the horizon. But we do know that there is a risk for substantially slow growth," he said.
Fisher said that policy-makers like himself pay attention to the dollar's value, adding "part of that is because I served in an administration in 1978 where we had a dollar crisis and I remember how harmful it was."
In addition, a cheaper dollar raises the possibility that inflation can be imported, because it costs more to buy foreign-made goods. But, Fisher added, that was partly offset by the fact that it also was cheaper for foreigners to buy U.S-made goods so that exports were on the rise.
(Reporting by Ed Stoddard, writing by Alister Bull and Glenn Somerville; Editing by Chizu Nomiyama )
