Eleven interest-rate reductions by the Federal Reserve last year are supporting the US economy's recovery, which now needs time to strengthen, three Fed officials said yesterday.
"Interest rates are already quite low and I don't think the things that are trying to get themselves corrected and worked out in the economy are an interest-rate problem," said Jack Guynn, president of the Federal Reserve Bank of Atlanta.
Fed Governor Ben Bernanke said while the economy hasn't grown as quickly as central bankers expected and faces a "rather murky" outlook, monetary policy is already "accommodative."
The economy is likely to grow 3 percent next year, according to the October Blue Chip Economic Indicators consensus forecast.
While that would be faster than the 2.4 percent growth rate projected for this year, it's less that then 3.5 percent that many economists say the economy can sustain without causing a pickup in inflation. The Fed has held the benchmark overnight lending rate at a 41-year low of 1.75 percent since December.
In separate appearances, Guynn, Bernanke and Minneapolis Fed President Gary Stern signaled the economy was recovering from last year's recession and the rebound needs time rather than lower rates to accelerate.
"We've brought the fed funds rate down from very high levels in a very short period of time," Guynn told the Atlanta Rotary Club. "My conversations with businesspeople suggest to me that their decision to spend or not to spend, or buy the next round of computers has nothing to do with interest rates these days."
Stern, currently a voting member of the Fed's policy-setting Open Market Committee, said he expects the economy to pick up in the second half of next year.
"I don't think the economy's easily undermined," he told business leaders in Milwaukee. "I don't see it undermined by developments in the economic arena."
Investors are becoming less inclined to bet on the Fed lowering rates this year, based on trading in federal funds futures contracts.
Still, Bernanke and Guynn said the central bank could lower rates if policy makers deemed such action necessary to preserve the recovery.
Monetary policy "is accommodative because the real interest rate is close to zero," Bernanke told reporters after speaking to business economists in New York. "That doesn't mean that depending on circumstances we might not want to act further, but it certainly is accommodative."
Stern said businesses remain "cautious" about investing because they have found it hard to raise prices with inflation in check. Bernanke said companies aren't investing because of stock market declines, rising oil prices and "geopolitical concerns," such as the threat of a war with Iraq.
"Firms are the laggards at this point," he said. "They're not making commitments to future production." Inventories at US factories, wholesalers and stores unexpectedly declined in August as companies kept stockpiles lean out of concern the recovery is flagging, Commerce Department figures showed today.
The Fed won't be "confident that the recovery is well on track" until hiring increases, Bernanke said.
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