HICKORY, N.C. – Federal Reserve Bank of Richmond President Alfred Broaddus said on Tuesday that the Fed will do everything it can to foster an economic recovery in the United States, but that interest rate cuts are not enough on their own to help the economy weather the trials it faces.
``I think we all recognize that lower interest rates alone can't meet all the economic challenges we face,'' he told local business leaders.
Broaddus, who is not a voting member of the rate-setting Federal Open Market Committee this year, noted that the Fed has been easing since the start of the year.
Faced with a sharp economic slowdown, the central bank has cut rates nine times this year, including two half-percentage point moves since the devastating attacks on Sept. 11. Overnight lending rates now stand at a nearly four-decade low.
However, Broaddus said the view in some quarters that the business cycle is different this time and that interest rate reductions will not prove effective is ``off the mark in my opinion.''
``I believe the actions we have taken have already helped moderate the economy's deceleration. I expect the effects of what we have done to become more evident over time, and of course our actions are being reinforced by the tax cuts, rebates and other fiscal actions recently taken,'' he said.
Congress has already passed $40 billion in emergency spending measures since the attacks plus direct and indirect airline aid worth $15 billion. A stimulus package worth $100 billion over the next year was passed by the House of Representatives Ways and Means Committee on Friday.
Earlier this year, a 10-year $1.35 trillion tax cut package was enacted which has already seen billions of dollars in rebate checks mailed to consumers.
``While there will continue to be substantial uncertainly regarding the near-term path of the economy over the next several months as a result of the blow we have received, I am very confident that we are building a solid foundation for a strong recovery over the longer term,'' Broaddus said.
``I can assure you that we at the Fed will continue to do everything we can do to foster that recovery,'' he added.
He said there had been glimmers of hope that things were improving for the shaky U.S. economy prior to the attacks that leveled New York's World Trade Center and damaged the Pentagon, killing thousands and rocking consumer confidence.
``Right before the attacks, some economists thought we might be seeing some signs that factory activity may be bottoming out and preparing to move back up,'' Broaddus said.
He said that before Sept. 11, consumers were still spending and new home sales and construction were healthy.
``So, on the eve of the crisis, the economy was clearly soft, but there were at least a few signs that the worst of the slowdown might be behind us and that the economy might be ready to reaccelerate,'' the Richmond Fed chief said.
He said that the retail sales report released last week was not a positive sign for consumer behavior.
The U.S. Commerce Department reported on Friday that retail sales tumbled 2.4 percent in September, the steepest falloff in at least nine years.
``The initial news, not surprisingly, is not very encouraging,'' Broaddus said. ``The decline was clearly substantial, and the softness was broadly based across sales categories.''
He added that the U.S. economy has absorbed a ``significant blow''.
``But there can be no doubt that we will recover fully from this blow, and more,'' Broaddus said.