NEW YORK (AFX) - There is an "excellent chance" that the US can avoid a decline in real GDP despite the "dismal" August unemployment report released on Friday, according to William Pool, the president of the St Louis Federal Reserve Bank and a voting member of the FOMC this year.
"No one knows for certain whether the economy can escape an actual decline in real GDP, but the fact that we have done so to date and that many adjustments are now well along suggests that we have an excellent chance of doing so," Poole said in remarks prepared for delivery to the National Association of Business Economics annual meeting.
Poole was the lone dissenter when he voted against the FOMC's decision to cut short-term interest rates by 25 basis points on June 27 and maintain an easing bias. At the time, Poole said he was worried that the Fed's string of rate cuts might spark inflation. In his speech this morning, Poole said that a central bank "must maintain a commitment to low and stable inflation."
"If the central bank does not achieve that goal, no one else can," Poole said.
Poole is a member of the monetarist school of economics and said that monetary aggregates should play a more prominent role in current Fed policy-making deliberations.
"My own conviction is that we should not rely too much on current observations on the state of economy...but watch carefully direct measures of the thrust of monetary policy itself," he said, adding: "I believe that there is information in the monetary aggregates on the thrust of monetary policy and that we ignore that information at our peril."
Poole said that US economy growth "has slowed to a crawl this year" led by the tech sector, which "has taken a real tumble." "The economy is working through a period of excess production capacity in information technology and related equipment. Some of the adjustment will take care of itself as demand recovers from temporary weakness," he said.
But he added: "We have no guarantee that demand (for high-tech products) will rebound quickly next quarter or the one after." "In time, investment in high-tech equipment will recover in the normal course of events," he said.
The central banker said there is further scope for business failures in the high-tech sector, not only because of the economic situation but also because of the sector is still a young one. "There may be some longer-run adjustment that will eliminate certain firms," he said. "We dont know what business models will work in the internet world, and with any new technology it takes a while to figure out what models yield reliable earnings over time." Poole said the Fed "has no way to address the problems of this or any other specific sector of the economy."
He said the Fed can do is to prevent problems in a specific sector from becoming a general problem.