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Wednesday, August 15, 2007

Fed's Poole: No Need for Emergency Rate Cut

by Calculated Risk on 8/15/2007 07:27:00 PM

From Bloomberg: Poole Says No Subprime Impact Yet on `Real Economy'

Federal Reserve Bank of St. Louis President William Poole said there's no sign that the subprime- mortgage rout is harming the broader economy and an interest-rate cut isn't yet needed.

"It's premature to say that this upset in the market is changing the course of the economy in any fundamental way," he said in an interview in the bank's boardroom. "Obviously, there could be an impact, but we have to rely on some real evidence."

Barring a "calamity," there is no need to consider an emergency rate cut, Poole said. ...

Poole, 70, said businesses have maintained their hiring and investment plans and banks have sufficient capital to weather the credit-market turmoil. The St. Louis Fed chief stressed that the best course is for policy makers to assess the latest economic data when they next meet Sept. 18. The comments contrast with the certainty that traders put on a rate cut next month.

"If the data confirm the market's view that the economy is sagging, we'll have to decide whether to share that view," said Poole, who votes on the rate-setting Federal Open Market Committee this year. He cited the monthly jobs, retail sales and industrial production reports as key gauges he'll be watching.
Poole rebutted comments from some Fed watchers that the central bank may be out of touch with market developments. The criticism followed comments the St. Louis Fed chief made to reporters on July 31 that the slump in stocks was ``a typical market upset.''

"No one has called up and said the sky is falling," Poole said today. "As I talk to companies, their capital spending plans are intact."
Poole said he didn't regret that the Aug. 7 statement retained a bias against inflation. He also said that while consumer price gains are "moving in the right direction," the "job is not done."
Prediction: Cramer's head will explode.