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NY Fed Warns of Potential Deficit Fallout
Thursday March 25, 10:36 am ET
By Pedro Nicolaci da Costa


NEW YORK (Reuters) - A ballooning budget deficit and low savings rate pose risks to the U.S. economy and the financial system, New York Federal Reserve President Timothy Geithner said on Thursday.

"The current deterioration in the U.S. fiscal position and the acute decline in the net national savings rate represent risks to the financial system and the economy as a whole," Geithner told the New York Banker's Association.


Geithner said such looming risks were made all the more worrying by the size of the U.S. current account deficit and the unprecedented scale of financing needed to fund it.

The central banker urged the United States to strengthen risk management in an increasingly complex financial environment to guard against any eventualities.

He also noted that U.S. inflation was very low and the outlook was for only very modest prices rises ahead, but offered little in the way of hints on monetary policy in his first major speech since becoming NY Fed President.

GREENSPAN ON FARMS

Fed Chairman Alan Greenspan also refrained from using any language that might suggest the future direction of interest rates.

In a separate speech on Thursday, Greenspan said open global markets are needed to ensure that consumers worldwide enjoy the benefits of rapid gains in agricultural productivity.

Greenspan noted advances in farm productivity had brought wrenching changes over the years in the U.S. economy, as workers first migrated to manufacturing and more recently into service industries.

But he told the conference, sponsored by the Kansas City Federal Reserve Bank and the Organization for Economic Cooperation and Development, that such "dislocations" were a worthwhile price to pay for the increases in living standards productivity brings.

Financial markets are awaiting speeches from Fed Board Governor Donald Kohn and St Louis Fed President William Poole for any clues regarding the timing of an eventual interest rate hike from the central bank.

On Wednesday, two Federal Reserve officials warned investors that loose monetary policy conditions will not last forever, particularly in light of robust U.S. economic growth.

Job creation has been the missing component in the U.S. economic recovery, and until it picks up in breadth and speed, the Fed has suggested, borrowing costs are likely to remain at 1 percent, their lowest level in 46 years.