Federal Reserve: inflation not an immediate threat

11-20-2009 12:23

Senior US central bank officials have declared that inflation is not a direct threat, while gloomy expectations regarding employment and a flaccid economic improvement keep price pressures under control. The US economy is improving but there still remain several risks that could frustrate further growth, according to Richard Fisher, head of the Federal Reserve Bank in Dallas, and Charles Plosser, president of the Philadelphia Fed.
“The economy starts to recover, but at a very slow pace,” Fisher commented after speaking at the Cato Institute in Washington. “The US economy remains rather weak.”

Federal Reserve

Last December, the Federal Reserve lowered interest rates close to zero and has preserved those levels in order to bolster the economy to improve from the most intense slump since the thirties.
The extremely low rates will be preserved for an extended period, central bank officials recommitted this after their last gathering on November 3 – 4.

Not an immediate threat

The weak situation of the commercial real estate market is still worrying since falling prices are a threat for small and medium-sized banks in the US, according to Plosser, the main anti-inflation Federal Reserve official.
Although inflation is not an immediate threat in the near future, the US should think about changing the interest rate policy, since the economy recovers, Plosser added.
He continued by saying that he became more confident about the economic improvement in the US, while he considered the risk of a double-dip slump as less threatening. However, Plosser believes that it’s premature to increase interest levels.

Optimistic character

James Bullard, head of the Federal Reserve Bank of St. Louis, was also negative about the employment outlook for the US, while he is “less confident” about a possible improvement in employment at the end of this year, as he forecasts some net hiring in the first period of next year.

In October, unemployment in the US increased by 190.000, which led to the highest unemployment rate in 26,5 years: 10.2%. The optimistic character of the forecasts by the Federal Reserve officials confirmed investors’ prospects that interest hikes are not likely in the near future.