WASHINGTON — One day after the Federal Reserve provided a surprise interest rate cut, a top Fed official said Thursday that it was too soon to say that the sagging economy has bottomed out.
Federal Reserve Vice Chairman Roger Ferguson pledged the Fed would continue to be “vigilant” in its work to prevent a recession, strongly hinting that further rate cuts were likely.
Ferguson, who spoke to an economists’ group on central bank secrecy, sought to provide a fuller explanation of economic conditions that prompted the Fed on Wednesday to cut interest rates by one-half point for the fourth time this year.
Ferguson noted, as the Fed did in its rate cut announcement, that the central bank was particularly uneasy at present about the outlook for business investment spending, because companies are being squeezed by declining profits and falling stock prices.
As for consumer spending, which accounts for two-thirds of the nation’s economic activity, Ferguson said reduced corporate earnings “have hit the stock market hard since last fall” and lower returns to stockholders could be reflected in much slower consumer spending.
Given these threats, Ferguson said, “I think it is too early to have a strong conviction that the economy is reaching the end of this period of quite slow growth.”
“I sense that in this economy we’ve got plenty of room” to lower interest rates further if necessary, Ferguson said in response to a question after his speech. In his remarks, Ferguson said that in the current economic environment it remains uncertain how low interests have to go to restore healthy growth.
The Fed’s surprise rate cut this week, the second this year that came between regularly scheduled meetings, pushed the Dow Jones industrial average to its third biggest point gain Wednesday, 399.10 points. Technology stocks extended their gains on Thursday.
In economic reports, the Labor Department said Thursday the number of newly laid-off workers filing for unemployment benefits declined by 10,000 last week to 385,000 after hitting a five-year high the previous week.
Even with the improvement, the four-week moving average, which smoothes week-to-week fluctuations, rose to 382,250, the highest level since the week of April 13, 1996.
The weekly jobless claims report is being closely watched at present by economists for signs that layoffs have reached levels that could seriously dampen consumer spending.
A Labor Department analyst said the Fed, as is customary, received an advance look at this week’s jobless claims report on Wednesday, 24 hours before the report’s public release.
Private economists said they viewed the small retreat in claims last week as an encouraging sign that the economy, while sluggish, has not entered a recession. “The labor market is weak but is not collapsing,” said Karen Dexter, an economist at Merrill Lynch in New York. “Claims would need to rise into the mid-400,000 range before signaling a recession.”
Rising layoffs have already pushed unemployment, with the jobless rate rising to 4.3 percent in March, compared to the 30-year low of 3.9 percent reached during three months last year.
For the week ending March 31, 49 states and territories had increases in jobless claims while three had declines and one reported no change.
The state data are not adjusted for normal seasonal variations and lag behind the national data by one week.
On the Net: Jobless claims: http://www.ows.doleta.gov/news/news.asp
Federal Reserve: http://www.federalreserve.gov