The president of the Federal Reserve Bank of San Francisco, which includes Utah in its district, defends the Fed's decision to raise interest rates several times in recent months. He says the moves were designed to benefit the nation as a whole rather than a particular region that may be having economic difficulties.
Robert T. Parry said the Fed can't conduct a monetary policy for any particular region because the policy works through national credit markets. In the United States, those markets are very efficient, with transactions being processed from coast to coast in a few seconds."Above and beyond the practical difficulties, there's also a real danger in focusing too much on any one region of the economy that's having a hard time," said Parry. "Often enough, some state or region is going through a recession of its own while the national economy is humming along."
Parry said if the nation is growing economically at 3 percent, it means some states are higher and some are lower. "If the Fed stimulated (by lowering interest rates) whenever any state had economic hard times, we'd be stimulating almost all the time," he said.
He said some people believe the Fed should have maintained a stimulation monetary policy. "The trouble with this view is that monetary policy is not only `blunt,' but it's also subject to `delayed reactions.' "
It takes between 18 months and two years for a Fed policy action to produce results against inflation, and this time lag means the Fed can't wait until problems show up in the data because by then it will be too late, he said. "Instead, we have to anticipate problems and pay attention to the warning signs," Parry said.
Even though inflation news has been favorable lately, Parry said a boost in interest rates was necessary because short-term real interest rates were near zero from late 1992 through 1993. The last time rates were this low was just before inflation increases in the late 1970s and early 1980s.
"Although the recent situation wasn't nearly as dire as that one was, we didn't want to risk even a small part of that kind of problem again," Parry said.
Commenting on the Federal Reserve System's 12th District, Parry said it contains the nation's fastest-growing states of Utah, Nevada and Idaho and the two poorest performers, California and Hawaii.
One of the reasons Utah is booming economically, he said, is that technological changes have made it easier to serve a huge market base from places like Salt Lake City. Other attractions of Utah, he said, are the positive lifestyle characteristics, a welcoming business climate and productive workers.