Fed’s Poole: Need Convincing Evidence to Cut Rates
St. Louis, MO, January 18, 2007--Federal Reserve Bank of St. Louis President William Poole said on Wednesday he would require very convincing evidence to back an interest rate cut, but he did not rule out such a move.
"I think that we are well positioned where we are," Poole told reporters before giving a speech to the Chartered Financial Analysts of St Louis.
"Having said that, I would emphasize two points. One is that policy is driven by new information, and at any time we could have information beyond what we expect that would make appropriate a policy adjustment in either direction," he said.
"Secondly, I am often described that I am an inflation hawk. I haven't changed my mind about that, and therefore I think that only if the new information is pretty compelling would I want to take a position that we ought to be lowering rates. And I absolutely don't rule that out," he said.
Poole, a voting member of the Fed's policy-setting committee this year, said he expects U.S. economic growth of between 2-1/2 and 3 percent this year with inflation gradually creeping down, signaling rates may stay on hold for a while.
"I think we need to be open to policy changes. On the other hand, if the economy comes in very much as currently anticipated then there would not be any reason for a change."
That said, when asked whether the Fed could stay on hold for a prolonged period, Poole also balked at the idea of committing in advance to any particular policy course.
"My own take is that I don't like to lock myself in, so I would not want myself to commit to an extended pause," he said.
The U.S. central bank, which last raised rates in June, has held them steady at 5.25 percent at each of its last four meetings. Investors see the Fed beginning to cut interest rates from the middle of this year as the economy sags under the weight of the cooling housing market.
Some economists, on the other hand, worry that building wage costs could push up inflation and force the Fed to move in the other direction. But Poole did not sound particularly worried that an unemployment rate of 4.5 percent, seen in December, signaled an over-tight labor market.
"The anecdotal reports that I hear are consistent with a labor market that is pretty evenly balanced," Poole said.
