Federal Reserve Bank of Dallas President Richard Fisher said U.S. growth may accelerate to as much as 4 percent during the second half of this year, spurred partly by falling energy and food prices.
“It wouldn’t be unimaginable to see 4 percent growth in the second half” of 2011, Fisher said Tuesday in a speech in Round Rock, Texas. “The price of energy and price of food has frightened the consumer,” he said. “As these prices come down a little, as we forecast they would, that relieves a little bit of the anxiety.”
Fisher supported the Federal Open Market Committee’s decision last week to maintain record monetary stimulus after completing $600 billion of Treasury purchases as planned this month. The FOMC reiterated its pledge to keep the benchmark interest rate near zero for an “extended period” and said temporary forces are inhibiting growth, including energy prices and disruptions in the supply of goods after Japan’s earthquake.
“We saw a pickup of activity in June,” Fisher told reporters after his speech to the Round Rock Chamber of Commerce, citing Dallas Fed surveys of retailers, manufacturers and service companies.
The Dallas Fed chief told reporters that some prices may rise, noting that companies he surveys plan to “price aggressively” in the second half of the year in response to cost pressures from rising commodities prices. He said he’s “wary” about a “break-out” of inflation.
Rising inflation, declining share prices and unemployment persisting at around 9 percent may inhibit consumer spending, the biggest part of the economy. Confidence among U.S. consumers unexpectedly fell in June to a seven-month low, figures from the Conference Board, a New York-based private research group, showed Tuesday.
Employers last month added the fewest workers since September, and spending, adjusted for inflation, dropped for a second consecutive time, figures from the Labor and Commerce Departments showed. Also, in April the S&P/Case-Shiller index of property values in 20 cities fell 4 percent from April 2010, the biggest drop since November 2009.
Fed policy makers last week reduced their forecasts for economic growth and employment this year and next. Chairman Ben S. Bernanke said during a June 22 press conference that while the outlook for jobs and inflation is better than before the latest bond purchases, he’s not sure how long the economic headwinds will persist.
“I look forward to exiting from accommodative monetary policy,” Fisher told reporters, while declining to say when an exit might take place. “The question is timing.” Holding the balance sheet steady after June is a “first step.”
The FOMC said last week it will continue the policy of reinvesting proceeds of maturing mortgage and Treasury debt without indicating the duration for the policy. The Fed’s balance sheet rose to a record $2.86 trillion as of June 22.
The Standard & Poor’s 500 Index climbed 1.3 percent to 1,296.67 at the 4 p.m. close in New York. A drop of almost a point in the 10-year note pushed yields up 10 basis points to 3.03 percent after they declined Monday to 2.84 percent, the lowest level since Dec. 1.
Americans are still boosting savings and cutting spending in the wake of the deepest recession since the 1930s, the Dallas Fed official said.
“Consumers are very shy right now,” Fisher told reporters. “We still have excess leverage, and people are deleveraging,” a trend that is likely to continue “for quite some time,” he said.
Fisher, 62, has been president of the Dallas Fed since 2005. When he held an FOMC vote in 2008, he dissented five times in favor of tighter policy.
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