Fed's Poole says U.S. recession likely
Yahoo News/Reuters
By Joanne Morrison
February 11, 2008

ST. LOUIS (Reuters) - The U.S. appears likely to avoid an economic slowdown but the chances of a recession have risen, St. Louis Federal Reserve Bank President William Poole said on Monday.

"I think the best bet is that we will not have a recession," he said in response to questions after a speech to the St. Louis chapter of the National Association for Business Economics.

However, Poole later told reporters, "There is no question that the odds (of recession) are higher than they used to be."

The St. Louis Fed president, who is retiring in March and will not attend the next scheduled interest rate policy meeting on March 18, said Fed interest rate targets are well-positioned to steady the economy against slowing growth and market turmoil.

"Policy is at a good place both for the long-run concern and for cushioning the impact of the financial disturbances we are now dealing with," he said.

The Fed cut interest rates by 1.25 percentage points to 3 percent last month to prevent the economy from sliding into recession as stock markets tumbled sharply and evidence mounted that the housing slump and a credit crunch were damping hiring and spending.

At the same time, even as the economy has slowed, inflation has climbed to levels higher than the comfort zone of some policy-makers.

However, Poole said that inflation expectations have remained steady.

"So far we're standing with very sticky shoes on that slippery slope," he said. "We do watch it very closely; there's no question that there's a risk."

Poole said the housing market continues to be a problem, but based on his readings of retail and auto sales data, consumer spending is flat but is not crashing.

One glimmer of hope is that while recessions are typically characterized by large business inventory overhangs, stocks are currently lean.

In his prepared speech, Poole said efforts to provide guidance on the likely direction of interest-rate policy often can sow more confusion than clarity.

"I have concluded that an ... attempt to provide forward guidance in the policy statement causes more communications difficulties than it solves," Poole said. "A key reason is that the economy is subject to more shocks and reversals than one might think."

Those shocks require the central bank to change interest rates more frequently that he would have thought likely before he arrived at the regional Fed bank 10 years ago, he said.

(Reporting By Joanne Morrison, writing by Mark Felsenthal; Editing by Neil Stempleman)

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