Richmond Fed President Offers Outlook on Economy

Federal Reserve Bank of Richmond President Jeffrey Lacker reviewed the market turmoil and its possible effects on the broader economy today in a speech to the Risk Management Association of Charlotte.

"Financial market volatility, in and of itself, does not require a change in the target federal funds rate, in my view. Interest rate policy needs to be guided by the outlook for real spending and inflation. Financial turbulence has the potential to change the assessment of the appropriate rate if it induces a sufficient revision in growth or inflation prospects."

Later in his remarks, he concluded:

"On balance, then, I still expect consumer spending to be reasonably healthy, and for business investment to continue to expand. But I expect overall growth to come in somewhat below its long-term trend for the remainder of this year, based on my expectation that the drag from housing will continue for some time. The most plausible downside risk is that financial market developments will lead to higher mortgage rate spreads and will further depress housing activity. Other finance-related risks to economic growth appear to be relatively minor."

By Dan Beyers  |  August 21, 2007; 2:22 PM ET
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