TOKYO (MNI) – Dallas Fed president expect the U.S. economy to
decelerate as job security, portfolio risks and a sagging housing market
continue to hurt consumers while his Richmond Fed counterpart said
consumer and business spending will be sufficient for the economy to
continue recovering, according to Nikkei interviews published Tuesday.

On the prospects for the U.S. economy in the second half of the
year, Richard Fisher, president of the Federal Reserve Bank of Dallas,
told the business daily in a recent interview that he sees “slower
economic growth than we’ve had in the first and second quarter.”

Fisher estimated growth of 2-3%, saying that the figure will likely
come “closer to the low end of that range.”

Fisher pointed out the lack of strength in consumption, citing high
unemployment, concerns about the financial markets, and the inability of
consumers to take money out of their homes because of the decline in
home values.

Middle-income and lower-income consumers are “having to be very
cautious about what they spend,” he said.

Furthermore, Fisher noted the buildup of cash reserves: The S&P 500
companies “have over 1.8 trillion dollars in excess cash, above their
cash flow needs.

And banks who keep their reserves at the Federal Reserve … have
over a trillion dollars in excess reserves right now.”

“So there is money sitting there, but it’s not being used,” said
Fisher. “One of the reasons is because, obviously, there’s too much
uncertainty.”

Despite the waning impact of economic stimulus measures in the
second half, Fisher observed that the U.S. Congress voted against an
additional package, informed by the debt situation in Greece.

But with midterm elections approaching, he acknowledged the
instinct of politicians — whether Republican or Democrat — to look to
the central bank for answers.

“We have to grow faster than 3%” for employment to recover, Fisher
said. He also mentioned the need to clear up uncertainty surrounding
health care reform.

Businesses “don’t know where they’re going to be in terms of health
care costs,” stated Fisher. “Until that’s clarified … it’s very hard
for business to plan.”

“As far as the general question of tightening monetary policy, that
depends on the course of the economy,” Fisher said.

Meanwhile, Jeffrey Lacker, president of the Federal Reserve Bank of
Richmond, said in a recent interview with the Nikkei that spending by
consumers and businesses will be sufficient for the U.S. economy to
continue recovering.

“When consumption fell in 2008, it was because people were afraid
of losing their job,” Lacker noted.

“And when consumption picked up in late 2009, it was because people
who were afraid of losing their job became confident they would not lose
their job.”

While acknowledging that household wealth is at levels equivalent
to 2003-4, Lacker does not think “it’s too low for consumer spending to
expand.”

“Private-sector demands in the U.S. are healthy enough to sustain a
recovery,” he said.

“I think consumer spending is moderately strong, is expanding at a
reasonable pace.

Business spending on equipment and software is also expanding at a
healthy pace.

Those two categories of spending are going to be strong enough to
sustain the U.S. recovery.”

Lacker also discussed the repercussions of winding down provisional
tax breaks:

“The recent decline in housing market activity is because of the
expiration of the Federal Housing Tax Credit. Because of that tax
credit, people pulled forward, pulled summer sales into the spring. The
housing market, broadly speaking, is relatively stable at a low level.”

“It will be choppy, but flat for this year and into next year. So I
don’t think housing will contribute much to growth, but I don’t think it
will subtract much from growth either.”

On the Fed’s monetary policy, Lacker said: “I’m comfortable with
rates where they are now, but later this year I think it will be a
legitimate question about whether we drop … the ‘extended period’
language and think about raising rates.”

tokyo@marketnews.com
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