By Bryan Corliss
Herald Writer
SEATTLE — The Federal Reserve has room to cut interest rates even further, if that’s what’s needed to jump-start the post-Sept. 11 economy, the president of the Federal Reserve Bank of San Francisco said Thursday.
"If further action is required, I’m sure we have the capability to do that," said Robert Parry, a nonvoting member of the Fed’s interest rate-setting Open Market Committee.
"We still have ammunition," he said. "I don’t see us running out of it."
But the Fed already has lowered interest rates 10 times this year, he noted. "It isn’t going to be long before the effects of that begin to work in a very positive way."
Parry spoke at a breakfast lecture sponsored by the University of Washington Business School.
The Sept. 11 attacks "struck while we were vulnerable, pushing us from sluggish growth to an outright contraction," Parry said. "Frankly, over the short-term, the outlook isn’t great and there’s a lot of uncertainty."
But long-term, the U.S. economic outlook is good, Parry said. "Our economy is fundamentally strong and it still affords tremendous opportunity."
Parry declined to set a timetable for recovery. But it’s certainly a possibility that the nation will see "declining output" — or a recession — for the first three to six months of 2002. Unemployment rates will continue to rise, Parry predicted.
But the combination of the Fed’s interest rate cuts, this summer’s federal income tax cuts, the government’s emergency spending after the attacks and the economic stimulus under debate in Congress "should make economic activity rebound," Parry said.
Those measures will pump about $160 billion into the economy next year, he said.
At the same time, oil and natural gas prices are falling, and that also will put more money in the hands of consumers.
The Northwest won’t lag behind other parts of the country when the economic recovery starts, Parry said.
Several regional economists have predicted that it will, given that Boeing will have laid off about 20,000 Puget Sound area workers by the middle of next year.
But Parry said he believes when the turnaround comes, it will spur companies to start investing again in technology and software, which will resuscitate the Northwest high-tech industry.
And as business activity increases, travel will, too, and that will help Boeing, he said.
"It’s tough now. It’s going to be tough for some period of time," Parry said. But long-term, there’s no reason not to be positive about the economic future of Puget Sound, he said.
You can call Herald Writer Bryan Corliss at 425-339-3454
or send e-mail to corliss@heraldnet.com.
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