Fed's Poole says U.S. not heading into recession

SANTIAGO (Reuters) - St. Louis Federal Reserve President William Poole on Friday dismissed fears that the U.S. economy was heading into recession, and said he saw no current grounds for the central bank to prop up falling stock markets.

Federal Reserve Bank of St Louis President William Poole participates in a Bank of Korea seminar in Seoul June 16, 2006. Poole on Friday dismissed fears that the U.S. economy was heading into a recession. REUTERS/You Sung-ho

“We do not see a recession coming,” he told a business audience after delivering a speech on energy and the U.S. business cycle at the American Chamber of Commerce.

“I think the probability is a little higher than it might have been two years ago. But the prevailing forecasts certainly do not include a recession in the U.S. economy,” he told reporters on the sidelines of the event.

Former Fed Chairman Alan Greenspan alarmed some investors, and may have contributed to a worldwide downturn in stock markets, with a warning earlier this week that a U.S. recession was possible, although not likely.

Poole, a voting member of the U.S. central bank’s interest rate-setting committee this year, said the drop in equity prices was no reason for the Fed to get involved at this stage.

“At this point it seems to me there is no pressing need for any immediate action,” Poole told reporters after the speech.

“My sense is that the sharp decline on the stock market was mostly unexplained, not an obvious outcome of some external shock... I don’t think it’s fully understood,” he said.

U.S. stocks, as measured by the benchmark S&P 500, have shed over three percent for their worst weekly percent drop since August 2004.

Greenspan’s remarks have prompted some commentators to complain that he was complicating the job of his successor, Ben Bernanke, by aiming remarks at financial markets. But Poole played down the odds that the former Fed chief could have done that amount of damage by himself.

“I find it hard to believe his comments alone was responsible for the market decline,” said Poole.

Concern over the health of the U.S. economy, together with worries over its subprime mortgage sector which involves riskier borrowers, were also cited for unsettling investors this week, although the drop began in China on concerns that authorities there might act to curb speculation.

Poole said economic fundamentals did not seem to point to further slides in stock prices.

“At the present time, our stock market valuation does not seem to be elevated, certainly not as it was at the end of 2000. We don’t see the accumulating evidence that would justify ongoing market declines,” he said.

Although it was not possible to completely rule out a sharp downturn in economic growth, Poole said, his outlook was for steady growth this year.

“Obviously, there could be a recession, and I see lots of news letters coming into my email inbox and I see some people forecasting a soft economy and other people forecasting surprising strength in demand. And so there are a lot of differences of opinion,” he said.

“I would say that the consensus view, and this is not just my view, but the consensus view is real growth in the neighborhood of 3 percent... No guarantee. That is the outlook we have,” he said.