WASHINGTON (AFP) — "Downbeat" US economic reports expected in the coming months will not justify a new interest rate cut, Federal Reserve governor Randall Kroszner said Friday.
"A sequence of data releases consistent with the rough patch for economic activity that I expect in coming months would not, by themselves, suggest to me that the current stance of monetary policy is inappropriate," Kroszner said in a speech prepared for an Institute of International Finance conference in New York.
The Fed released the text of his speech in Washington.
Kroszner, who said he was speaking on his own behalf and not the central bank's, noted a run-up in oil prices and a weakening of the dollar since the Federal Open Market Committee (FOMC) slashed its base federal funds rate by a half-point to 4.75 percent on September 18. It was the central bank's first rate cut in four years.
That rate cut, and a subsequent quarter-point reduction to 4.50 percent on October 31, were taken to ease a credit crunch related to the US housing slump.
"With those actions, however, the downside risks to economic growth now appear to be roughly balanced by the upside risks to inflation," Kroszner said.
"The prices of oil and other commodities continue, of course, to be a source of major uncertainty for the overall inflation outlook," he added.
The central bank governor, a member of the FOMC, said: "In the near term, the economy will probably go through a rough patch during which a number of economic data releases may be downbeat."
Those include home sales, which he expected to "weaken further," and consumer spending, which will be "constrained" by the housing crunch and imminent interest-rate resets on about 450,000 home mortgages per quarter until the end of 2008.
Rising uncertainty in the business sector "could lead to reductions in capital spending plans."
Although inflation expectations have also remained "reasonably well-anchored," oil and commodity prices are still a key risk factor in the inflation outlook and "spill-overs from the latest run-up in crude oil prices could begin to put upward pressure on core inflation," he added.
In sum, Kroszner said: "The economy seems poised to grow for a while at a noticeably slower pace than it did during the summer."
Lehman Brothers analysts ruled out Friday a rate cut at the next FOMC meeting on December 11.
"Recent Fed speakers have continued to stress the uncertainties around the forecast for both growth and inflation and their desire to see more data before easing further. We continue to look for the Fed to pause in December, but to ease 75 basis points by mid-2008," they wrote in a note to clients.
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