PARIS, March 7: A senior US Federal Reserve official issued a warning here Friday against expectations the central bank might soon approve another cut in US interest rates aimed at shoring up stock market sentiment.
The Fed is taking a very pro-active stance regarding what we view as economic developments, Richard Fisher, head of the Dallas, Texas Federal Reserve Bank, told a conference on globalisation.
I would discourage you from thinking (...) that suddenly we are going to move rates in response, he said when asked about the current turmoil and heavy losses on global stock markets as investors fret about the US economic outlook.
It simply doesn’t work that way, he told an all-say seminar organised by the Bank of France.
We are charged with creating the conditions for sustainable, non-inflationary growth, Fisher said, adding that US monetary authorities have other tools to work with in terms of market liquidity.He had been questioned on the Fed’s decision to slash its benchmark interest rate by 1.25 percentage points in January in the face of stock market turbulence and on an expected Fed response to current market weakness.
Many analysts now foresee a further easing in US monetary policy, especially if a report later Friday on US job creation proves disappointing and is seen as another sign the US economy is sliding toward recession.
The accomodative Fed policy stands in sharp contrast to that of the European Central Bank, which has turned a deaf ear to calls for lower eurozone interest rates and has insisted that inflation is the principal enemy.
The ECB on Thursday left interest rates unchanged and made clear that price stability was its priority, thereby sending the euro to record high levels against the dollar.
Fisher said the ECB has “a different mandate” from that of the Federal Reserve and is principally inflation-focused.
Fisher suggested that he agreed with the ECB position, telling the conference: I do not believe you can have sustainable employment growth unless you have inflation under control, which is why I have been personally reluctant to cut rates further.—AFP