The US economy’s recent recovery is not yet strong enough to trigger an increase in interest rates, a Federal Reserve official said Monday.
“The recovery will have to be firmer than it is right now and we’ll have to see more improvement” before the central bank raises its Fed funds rate, St. Louis Fed president James Bullard said in Tokyo.
The US Federal Reserve cited continued fragility in the US recovery when it kept ultra-low borrowing costs of zero to 0.25 percent at its April meeting, despite improvements in the labour and housing markets.
With global markets in recent turmoil over fears that eurozone debt woes may derail a fragile recovery, Bullard said that now was not the time to raise the Fed’s separate discount rate further, Dow Jones Newswires reported.
Central banks slashed lending rates to record lows during the financial crisis to get credit flowing and boost economies.
As the sovereign-debt crisis in Europe forces countries there to accelerate debt-reduction measures, there are fears that the crisis could halt economic revival more broadly.
But Bullard, a voting member of the Federal Open Market Committee, said such a scenario was unlikely.
“Even though it’s a very serious crisis and could get worse, I don’t think it’s strong enough to derail the global recovery at this point,” he said.
His comments chimed with those of Fed chairman Ben Bernanke, who said last week the impact from the eurozone crisis would be “modest” with the US economy on track to grow 3.5 percent this year.
Bullard said that 5.0 percent annualized growth in the United States over the next two quarters combined “seems like a reasonable possibility”.
He added that fast-growing Asian economies such as China continue to propel the global recovery with Asia to lead economic growth “into 2011 and beyond”.
Some asset prices in the Chinese economy do not reflect fundamentals, Bullard said, as the government in Beijing battles to rein in soaring property prices.
The Fed official said however that overall, China’s recent growth did not constitute a bubble but a return to rapid pre-crisis rates of expansion.
Copyright © 2010 AFP
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