Friday January 12, 1:18 pm Eastern Time
Top Fed Official Says Bank on High Alert
By Michael Kahn
OAKLAND, Calif. (Reuters) - The Federal Reserve will do whatever is necessary to ensure
the U.S. economy remains strong and stable, Fed Vice Chairman Roger Ferguson said on
Friday, signaling the central bank remains open to further cuts in short-term interest rates.
Addressing a group of business people in Oakland, Calif., Ferguson said the Fed was closely scrutinizing all incoming data on
the world's largest economy -- which has slowed dramatically after almost 10 years of non-stop growth -- and was keeping an
open mind as to its future rate actions.
``The Federal Reserve will continue to analyze the incoming information carefully and will act prudently and forcefully'' to
promote stable prices and strong growth, Ferguson said.
He was the first top-level Fed official to speak after the central bank slashed key short-term rates by an aggressive half
percentage point at the start of the year -- between regular policy meetings -- to keep the economy from hitting a wall. Most
economists expect another rate cut when the policy committee holds its next scheduled meeting on Jan. 30-31.
``Although I generally favor making policy decisions at our regularly scheduled meeting, we must remain flexible and be
prepared to respond quickly and firmly to developments that deviate significantly from our expectations,'' Ferguson said.
Ferguson forecast a period of ``notable weakness'' early this year, with activity picking up later on the back of continued
productivity gains. He cited private sector forecasters who expected the economy to grow by 2-3 percent this year.
WHAT'S GOING ON?
However, Ferguson cautioned that the economic outlook was characterized by ``more than the usual amount of uncertainty at
this juncture''.
While demand had weakened more than businesses had anticipated, and inventories had built to uncomfortably high levels in
some sectors, Ferguson said businesses were moving fast to adjust levels of production. Lower interest rates also should help
boost the level of demand, he added.
Ferguson insisted the Fed had cut rates earlier this month because the economy needed it, not because the central bank was
aware of any developments that markets did not know about.
``Taking a policy action between meetings surprised some observers, and some have asked, 'What does the Fed know that we
don't?' The answer to this question now, as in nearly every situation in which we change policy, is -- 'very little, if anything','' he
said.
Ferguson reiterated that the Fed was acting on information about the real economy and not trying to target stock prices.
But he added: ``Equity markets obviously do have spillover effects on the real economy and, thus, need to be considered in
assessing the aggregate balance of supply and demand.''
Ferguson, as usual, did not directly discuss what level of interest rates he expected in the near future, saying this would depend
on the economy's performance. But he also noted that rates would in part depend on conditions in financial markets as well as
investors' appetite for risk.
The Fed's Jan. 3 shock rate cut was the first time the Fed had lowered borrowing costs between regular meetings of the
rate-setting Federal Open Market Committee since the fall of 1998, when a global economic crisis threatened to seize up
financial markets in the United States and far beyond.
Ferguson also said expected the central bank would have a ''very good relationship'' with the incoming administration of
President-elect George W. Bush, who has cited the U.S. slowdown under way as an argument for pushing through his proposal
for a massive $1.3 trillion tax cut.
``One of the things that has emerged over time is an obvious respect for the independence of the Federal Reserve, which I
expect to continue with the new administration,'' Ferguson said, noting that former Fed governor Lawrence Lindsey now was
Bush's top economic adviser.
Fed behält sich vor, auch zukünftig zwischen den regulären Sitzungen Zinsentscheidungen zu fällen, Verhältnis zur Bushadministration ist "gut", FED wird auch in Zukunft alles tun, was sie für nötig hält, um die Wirtschaft zu unterstützen, Gerüchte über schlechte Nachrichten, die die FED zur letzten Zinssenkung bewogen haben sind falsch (wir wissen kaum mehr als Sie) usw.
Gruß Dampf
