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The Broader Economy Has So Far Escaped Sub-prime Unscathed
According to Federal Reserve Bank of St Louis President, William Poole, there's no sign that the subprime-mortgage rout is harming the broader economy.
"It's premature to say that this upset in the market is changing the course of the economy in any fundamental way,'' he said in an interview with Bloomberg in the bank's boardroom. "Obviously, there could be an impact, but we have to rely on some real evidence.''
His comments were the first by a Fed official since the U.S. central bank joined counterparts in Europe and Asia to inject emergency funds after a surge in money-market rates. The Fed has added US$71 billion of reserves in the past five trading days.
Poole said businesses have maintained their hiring and investment plans and banks have sufficient capital to weather the credit-market turmoil. He stressed that the best course is for policy makers to assess the latest economic data when they next meet on Sept. 18.
While money market rates have retreated, stocks have continued falling this week on concern a drop in lending will hurt economic growth. The Standard & Poor's 500 Index has fallen by 6.1% in the past week.
Poole said there's little evidence to suggest companies are changing their spending or hiring plans.
Poole joined in the unanimous decision by Fed policy makers to keep the benchmark rate at 5.25% for a ninth straight meeting on Aug. 7. Officials said in a statement while risks to growth had increased, citing "volatile'' financial markets, inflation remained the predominant concern.
Three days later, officials rushed to contain a crisis of confidence in markets, issuing a statement and pledging to inject funds "as necessary'' to steer the benchmark federal funds rate toward the 5.25% target. The Fed also highlighted that direct loans were available through the Fed's discount window.
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