Fed's Fisher Acknowledges Risk Of Low Interest

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Dallas Federal Reserve Bank President Richard Fisher said Tuesday that inflation is likely to remain low "for some time." As long as it does, he said, the Federal Reserve's low interest rate policy will remain appropriate.

In remarks prepared for delivery in Austin, TX, Fisher acknowledged that low interest rates could bring risks in the financial markets.

"I am fully aware" of the possibility of unintended consequences in relation to easy money policy,which he said "could fuel the carry trade," in which traders acquire "cheap" US dollars and invest them in higher-yielding securities denominated in other currencies. Fisher said the carry trade carries the risk of a potentially destabilizing influence on asset prices.

At its monetary policy meeting last week, the Federal Open Market Committee left rates steady at a range of zero to 0.25 percent.

If the "carry trade" became a "disorderly influence," said Fisher, he said the Fed would come up with an appropriate remedy.

Pointing to government data showing the American recession ended with a Q3 rise in GDP, Fisher said the growth is expected to continue, but on what might be a temporary basis.

"We had a snapback in growth in the third quarter and can expect that will continue in the current quarter," Fisher said. "But looking into 2010 and perhaps to 2011, the most likely outcome is for growth to be suboptimal, unemployment to remain a vexing problem and inflation to remain subdued," he said.

(Market News Provided by RTTNews)