Fed official: Slump feels like a recession

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NEW YORK (CNNMoney.com) -- The economy may not officially enter recession, the president of the St. Louis Federal Reserve Bank said Wednesday. But that may be little consolation to many Americans.

In a speech at Truman State University in Kirksville, Mo. Wednesday, William Poole said the economy is "limping along."

After his speech, the Federal Reserve issued a weaker economic forecast for 2008, predicting slower growth, higher unemployment and higher inflation for the rest of the year.

But like other Federal Reserve members, Poole stopped short of predicting an actual recession. He added, however, that even a significant slowdown will still be harmful to consumers.

"The difference ... may not be very large, as an economy growing at a barely positive rate will look and feel about the same as one with output falling slightly," Poole said.

But Poole cautioned that inflation is still a concern and that the Federal Reserve should not focus exclusively on recession fears when deciding what to do next with interest rates.

"My reading of economic history is that we generally live to regret a monetary policy focused exclusively on the number one economic concern of the day," he said.

He hesitated to say whether he believed the Fed should continue to cut rates at its next meeting on March 18, saying "further cuts in the target federal funds rate may or may not be appropriate."

He added that inflation could be a much bigger threat to the economy if it is left unchecked.

"A substantial increase in the rate of inflation promises a larger recession later, as the country learned at such great cost in the 1970s," he said.

Poole is an influential Fed official who voted against the central bank's emergency rate cut of three quarters of a percentage point on January 22. He does not currently sit on the rate-setting Federal Open Market Committee, however, and he is retiring from the Fed shortly after next month's meeting.

Poole concluded his speech by defending the actions of the Federal Reserve earlier this decade.

Some economists have suggested that the Fed should have started raising rates aggressively in 2004 and 2005 to cool down the housing market. By doing so, the country could have perhaps avoided the burst in the housing bubble and subsequent subprime mortgage mess.

"I do not recall many loud and insistent voices for tighter policy at that time," said Poole. "Policymakers are not clairvoyant."