Fed's Plosser on PBS: open to cuts as economy slows

Storm clouds gather over the U.S. Federal Reserve Building before an evening thunderstorm in Washington June 9, 2006. Philadelphia Federal Reserve Bank President Charles Plosser said on Friday that the U.S. economy slowed ''considerably'' late in the fourth quarter, and that he is open to further interest rate cuts.

CHICAGO (Reuters) - Philadelphia Federal Reserve Bank President Charles Plosser said on Friday that the U.S. economy slowed "considerably" late in the fourth quarter, and that he is open to further interest rate cuts.

In an interview to air Friday on the "Nightly Business Report" television show on PBS, Plosser said the Fed's biggest concern right now is a possible slowdown in consumer spending as wealth from the housing and stock markets erodes.

"I am certainly open to that," Plosser said when asked about the possibility of more rate cuts. "I am more uncertain about the future path of the economy than I once was. But my forecast at this point does not include a recession."

Financial markets expect the Fed to cut its benchmark overnight lending rate by one-half point at the Jan 29-30 Federal Open Market Committee meeting.

Friday's NBR interview revisited many of the themes struck in Plosser's speech on the economic outlook on Tuesday to a business group in suburban Philadelphia.

Plosser said the growth outlook was "a lot more uncertain" now than a few months ago, while inflation risks had also risen.

"The thing that we're most concerned about right now is consumer spending," Plosser said, adding that spending seems likely to be less healthy going forward than the Fed thought it would be a few months ago.

Plosser is a voting member of the FOMC in 2008 and will cast his first vote on monetary policy on Jan 30 since joining the Fed in August 2006.

Often tagged as an inflation hawk, Plosser said the risks of higher inflation had risen since the summer, despite slower growth.

"It is of some concern to me that more goods and prices, more goods and services are rising at faster rates," he said.

The Fed "is the only institution in government that can deliver on price stability and I think we have to take that charge very seriously," he said.

FOMC policy-makers see pressure from Wall Street and from politicians to make certain policy moves but remain impervious, he said.

"Politics plays a very, very little role," Plosser said.

Plosser said it was "way premature" to think about what fiscal policies might be proposed by Congress or the White House to shore up the economy, as some commentators have suggested in recent weeks.