Dallas Fed chief: Worries of recession outweigh inflation

Saturday, April 21st 2001, 12:00 am

By: News On 6

DALLAS (AP) _ The president of the Federal Reserve Bank of Dallas said Friday that this week's surprise interest-rate cut could boost consumer confidence and that the Fed is more worried about recession than inflation.

``Inflation is not dead,'' said Robert McTeer. ``Right now, we're worried about being on the edge of something that starts with 'R,' which I can't name with all these microphones. We've got to put our concerns about inflation on the back burner and save the economy from the `R' word.''

Fed policy-makers on Wednesday surprised investors with a half-percentage point reduction in the rate on overnight loans between banks, the fourth such cut this year.

Central bankers lowered the federal funds rate to 4.5 percent, the lowest in more than six years, to help revive an economy that grew in the fourth quarter at the slowest pace in more than five years.

Inflation has remained relatively under control this year, giving the central bank has plenty of room to lower interest rates aggressively to rejuvenate economic growth. If inflation was heating up, one method the Fed can control it is by raising interest rates to slow growth _ something the Fed doesn't want to do at this point.

McTeer, a nonvoting member of the policy-making Federal Open Market Committee, said the economy has performed fairly well despite a slowdown in manufacturing.

``The economy so far seems to be holding up,'' he told a business group at a downtown hotel. ``What we've got is a severe slowdown in the goods-producing sector, but not in the services sector ... Consumer sentiment has plunged but consumer spending has not.''

On Thursday, Federal Reserve Vice Chairman Roger Ferguson pledged the Fed would continue to be ``vigilant'' in its work to prevent a recession, strongly hinting that further rate cuts were likely. Ferguson said the Fed was particularly uneasy about the outlook for business investment spending as companies are squeezed by declining profits and falling stock prices.

McTeer said Friday that technology stocks were bid up too high before their plunge of the past year.

``We obviously had a technology stock bubble that has now burst,'' McTeer said. ``In Texas talk, we saw all foam and no beer.''

However, the bursting of the speculative bubble will leave surviving high-tech companies stronger because new competitors must sacrifice profits to startup costs, he said.


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