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Fed's Brainard says US economic slowdown may be more than temporary

Tuesday, June 2, 2015 - 22:10
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The US economy's recent poor performance may be more than transitory, as the full impact of weak consumer spending, low investment and the high value of the dollar become apparent, Federal Reserve board member Lael Brainard said on Tuesday.

[WASHINGTON] The US economy's recent poor performance may be more than transitory, as the full impact of weak consumer spending, low investment and the high value of the dollar become apparent, Federal Reserve board member Lael Brainard said on Tuesday.

"It would be difficult...to dismiss the possibility of a more significant drag on the economy," Ms Brainard said in a speech at the Center for Strategic and International Studies at which she indicated a rate hike may still be a ways off.

"There is value to watchful waiting while additional data help to clarify the economy's underlying momentum."

Adding a bearish voice to the debate over the economic outlook, Ms Brainard gave the fullest exposition yet of how a high dollar, weak foreign demand and the collapse in oil prices have complicated the US outlook. The expected benefits - of higher consumer spending, for example - have yet to materialize, while the drag on exports has been more severe and lasting than anticipated.

"The data are presenting a mixed picture...There may be reason not to ignore recent readings entirely," with the second quarter not yet showing signs of the expected "bounceback" from the dismal start of the year, Ms Brainard said.

Brainard said the recovery so far has been a story of "fits and starts," and that may be playing out again. "The underlying momentum of the recovery has proven relatively susceptible to successive headwinds," Ms Brainard said.

"Data in hand pertaining to the second quarter do not suggest a significant bounceback." Current headwinds from broad, including the risks associated with a Greek default and a slowdown in China, "may persist for some time," she said.

The Fed's policy setting committee meets in June and for the first time since the crisis will have the door open to an interest rate increase. Fed officials have signaled a hike is unlikely in June, given recent disappointment in some economic data and the concern that a more significant slowdown may be taking shape.

Ms Brainard's speech adds significantly to that impression.

A recent appointee to the Fed, Ms Brainard was previously the head of international economic matters at the Treasury Department, closely attuned to issues like the structural economic problems faced by China and the implications of the eurozone crisis.

Many Fed officials have suggested the troubles overseas would have only a transitory effect on the US economy. Brainard's comments are the most forceful statement yet of how overseas troubles may further delay the Fed's liftoff of interest rates.

REUTERS