CHARLOTTE, N.C. (Reuters) - Richmond Federal Reserve Bank President Alfred Broaddus said Monday there was no need to worry about a near-term pick-up in inflation, although the risk of an unwanted price slowdown had faded.
"With economic activity picking up, I personally think the risk at the moment of excessive further disinflation is lower than it was a few months ago, but it is not erased completely," Broaddus told the Charlotte Chamber of Commerce.
"At the same time, I think it's fair to say the risk of a sharp upturn in inflation at this point seems low," he said. "I think the need to pre-empt inflation at this point is pretty low. There just isn't a lot out there at this stage of the game to pre-empt."
After its most recent policy gathering last week, the Fed said the chance of an unwelcome slowing in inflation was now almost equal to that of a rise, a shift from previous months in which it had warned more strongly on disinflation.
Policymakers last week held the benchmark federal funds rate steady at 1958 low of 1 percent and repeated their view that "policy accommodation can be maintained for a considerable period."
Broaddus told reporters an "accommodative" policy did not necessarily mean one in which the benchmark overnight rate remained at 1 percent.
"Accommodative monetary policy could mean, could encompass, somewhat higher rates than currently but still below any measure of what we would think of as an equilibrium fed funds rate," he said.
Broaddus said he believed the economy was likely to outstrip consensus forecasts for 4 percent growth next year, adding there were both upside and downside risks to that view.
"Clearly we still have a ways to go before we can say we are completely out of the woods," he said.
Broaddus, who rotates out of a voting seat on the Fed's policy panel at the end of the year, said a weak jobs market and the possibility that strong advances in productivity would keep the labor market weak presented a downside risk in the outlook.
On the other hand, he said, low interest rates, the lingering effects of recent tax cuts and growing confidence among businesses suggested growth could prove somewhat stronger.
Broaddus said third-quarter data, which showed a sharp pick-up in business spending, suggested U.S. companies might finally be seeing a "light at the end" of the economic tunnel.
Asked about the weakening dollar, Broaddus said a growing deficit in the current account -- the broadest measure of U.S. international trade -- had created an environment in which the greenback could be pressured.
"The dollar has been declining fairly persistently now for a while," he said. "You can analyze it with complicated models and whatever you want to do; but when you have a current account deficit that's been rising at the rate we've seen recently, obviously that's going to create a situation where this can occur," he said.
"Over time, we need to do what we can to turn [the current account] situation around. I'd like to think that as the rest of the world begins to grow more rapidly -- and there are now clear signs that that's happening -- that we will begin to see that situation contained, and I think that will be helpful from the standpoint of stabilizing the U.S. dollar," he added.
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