Fed officials strike differing notes on economy
NEW YORK (Reuters) - Federal Reserve Bank officials said on Monday financial turmoil has increased risks facing the U.S. economy, but comments by others suggested there was still debate about how quickly the central bank would need to act.
The main threat is that the downturn in the housing market would hurt consumer and business spending, Fed Governor Frederic Mishkin told a group of investors.
"Economic activity could be affected more severely in other sectors should heightened uncertainty lead to a broader pullback in household and business spending," Mishkin told the Money Marketeers of New York University.
San Francisco Federal Reserve Bank President Janet Yellen struck a similar chord, saying tighter credit conditions had "appreciably" increased risks facing the U.S. economy.
"I see significant downward pressure based on recent data indicating further weakening in the housing sector and the tightening of financial markets," Yellen told an economic conference in San Francisco.
Fed policy-makers gather on September 18 to consider interest rate policy. Economists widely expect the central bank to cut the benchmark federal funds rate, with some arguing a surprise drop in employment in August, revealed in a report on Friday, justifies a hefty half-percentage point move.
The Fed has held the bellwether overnight rate at 5.25 percent since June 2006.
Despite the tone of concern from Yellen and Mishkin, other Fed officials said it was unclear if the economy had taken a turn for the worse, suggesting there is internal disagreement about the appropriate course of action.
Atlanta Federal Reserve Bank President Dennis Lockhart said the weak jobs data, which showed the economy lost 4,000 jobs in August and also was weaker than earlier thought in June and July, should be evaluated in tandem with strong retail sales.
"Employment data certainly are very important, and clearly have to be taken very seriously," Lockhart told a business group in Atlanta as he stepped back from an assertion he made on Thursday that data had not provided conclusive signs that housing problems were spilling over into the broader economy.
Still, he suggested he had yet to be convinced the case for aggressive rate cuts had been made.
Similarly, Dallas Fed President Richard Fisher, speaking in Laredo, Texas, said the U.S. economy still seemed sound despite a tightening of credit conditions related to rising defaults in the U.S. mortgage market for borrowers with poor credit histories.
"Our economy appears to be weathering the storm thus far. The future path of that storm and the appropriate policy course, however, are still to be determined," he said, giving a relatively upbeat assessment based on his business contacts.
JOBS NOT THE ONLY STORY
Traders in the bond market now see increasing chances of aggressive rate cuts and they pushed prices of U.S. debt higher, building on hefty gains made on Friday. The yield on benchmark 10-year notes fell as far as 4.30 percent, their lowest level since early 2006. Continued...
