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Dallas FedHead Fisher Says Rate Increases NOT Over

Dallas Fed President Sees No Recession
Wednesday August 16, 3:23 pm ET
By David Koenig, AP Business Writer
Dallas Fed President Says Recession 'Not on the Horizon'
http://biz.yahoo.com/ap/060816/fisher_economy.html?.v=4

DALLAS (AP) -- A member of the Federal Reserve's policy-making arm said Wednesday that inflation is gaining momentum, making it impossible to say whether the Fed is done raising interest rates. FisherRichard Fisher, president of the Federal Reserve Bank of Dallas, also said while the economy is cooling because of a surprisingly severe housing slowdown and rising energy prices, there is no recession in sight. Fisher made the comments in remarks to a meeting of real estate executives in Dallas.

Fisher is believed to be the first member of the Federal Open Market Committee to speak publicly since last week, when the panel voted not to raise key short-term interest rates. There has been much speculation since whether the vote represented merely a pause or whether the Fed was done raising rates after 17 consecutive increases over more than two years.

The committee said economic growth has slowed from the strong pace of early this year, partly due to cooling in the housing market and rising interest rates and energy prices, but that inflation risks remained that could require additional action by the Fed.

The Fed is waiting to see whether the previous rate hikes, which tend to have a delayed effect on the economy, will be enough to choke off inflation.

On Wednesday, the Labor Department said consumer inflation accelerated in July, reflecting a big jump in gasoline and other energy prices. "There is a definite increase in inflationary momentum," Fisher said. He told reporters later that he believes the previous rate hikes are beginning to tamp down inflation but that no one can tell when their full impact will hit. "If anybody tells you with absolute conviction that the Fed is done raising interest rates or with equal conviction that they have only paused and will raise rates more starting in September or October ... they are only guessing," Fisher said.

Fisher predicted that second-quarter gross domestic product would be revised upward from its originally reported 2.5 percent to closer to 3 percent, and that the third quarter growth would be "roughly of that magnitude." "From my vantage point ... a recession is not visible on the horizon," Fisher said.

"I expect growth will continue at a subdued pace from where we before," he said. The economy grew a brisk 5.6 percent in the first three months of the year.